hsbc front cover of media release hang seng bank limited 2008 interim results media release

4 August 2008

HANG SENG BANK LIMITED 2008 INTERIM RESULTS - HIGHLIGHTS

• Operating profit up 17.2 per cent to HK$9,112 million (HK$7,773 million for the first

half of 2007). • Operating profit excluding loan impairment charges and other credit risk provisions up

15.5 per cent to HK$9,300 million (HK$8,053 million for the first half of 2007). • Profit before tax up 3.1 per cent to HK$10,530 million (HK$10,218 million for the first

half of 2007), excluding the gain on dilution of strategic investment in the first half of 2007, profit before tax up 20.3 per cent.

• Attributable profit up 2.2 per cent to HK$9,064 million (HK$8,867 million for the first

half of 2007), excluding the gain on dilution of strategic investment in the first half of 2007, attributable profit up 22.5 per cent.

• Return on average shareholders’ funds of 32.8 per cent (36.6 per cent for the first half

of 2007), excluding the gain on dilution of strategic investment in the first half of 2007, return on average shareholders’ funds up 2.3 percentage points.

• Assets up 0.3 per cent to HK$747.9 billion (HK$746.0 billion at 31 December 2007). • Earnings per share up 2.2 per cent to HK$4.74 per share (HK$4.64 per share for the

first half of 2007). • Second interim dividend of HK$1.10 per share; total dividends of HK$2.20 per share

for the first half of 2008 (HK$2.20 per share for the first half of 2007). • Capital adequacy ratio of 13.9 per cent (11.2 per cent at 31 December 2007); core

capital ratio of 11.3 per cent (8.4 per cent at 31 December 2007). • Cost efficiency ratio of 26.3 per cent (26.6 per cent for the first half of 2007).

The capital adequacy and core capital ratios at 30 June 2008 were calculated in accordance with Basel II – foundation internal ratings-based approach which

became effective on 1 January 2008, while those at 31 December 2007 were calculated in accordance with Basel II – standardised approach. Within this document, the Hong Kong Special Administrative Region of the People’s Republic of China has been referred to as ‘Hong Kong’.

- 2 -

Hang Seng Bank Limited __________________________________________________________________________________________

Comment by Raymond K F Ch’ien, Chairman Hang Seng’s 2008 interim results reflect good performance in an increasingly challenging market environment. Net interest income increased by 23.2 percent, underpinned by good growth in Treasury balance sheet management income, expansion of higher-yield lending and improved loan spreads. Our wealth management business remained a key driver of growth. We launched innovative investment products and strengthened service delivery channels, which supported increases in the securities and investment fund account bases. Our life insurance business was Hong Kong’s number one provider in terms of new annualised premiums during the first quarter of the year. We expanded and deepened commercial customer relationships to positive effect. Corporate wealth management’s contribution to Commercial Banking’s total operating income increased to 11.2 per cent. We enjoyed strong growth in average commercial customer deposits and advances in mainland China. Mainland business increased its contribution to total profit before tax to 9.4 per cent, reflecting progress by Hang Seng Bank (China) Limited (‘Hang Seng China’) and a big rise in our share of profits from our strategic partner, Industrial Bank Co., Ltd. We took further steps to boost deposits growth, which significantly expanded our lending capacity. At a bank-wide level, operating profit excluding loan impairment charges and other credit risk provisions rose by 15.5 per cent to HK$9,300 million. Operating profit increased by 17.2 per cent to HK$9,112 million. Profit attributable to shareholders was up 2.2 per cent at HK$9,064 million compared to the first-half result in 2007, which included a HK$1,465 million one-off dilution gain from our strategic holding in Industrial Bank. Excluding this gain, attributable profit increased by 22.5 per cent. Earnings per share were HK$4.74, compared with HK$4.64 for the same period last year. Net operating income before loan impairment charges rose by 15.1 per cent to HK$12,620 million, reflecting continued growth across all our core business lines and outpacing the 13.9 per cent rise in operating expenses. This contributed to an improved cost efficiency ratio of 26.3 per cent – 0.3 percentage points better than a year earlier. Profit before tax was up 3.1 per cent at HK$10,530 million. Excluding the gain on dilution in the first half of 2007, profit before tax rose by 20.3 per cent. Return on average shareholders’ funds was 32.8 per cent, compared with 36.6 per cent (30.5 per cent excluding the dilution gain) for the first half of 2007. Return on average total assets was 2.4 per cent, compared with 2.5 per cent (2.1 per cent excluding the dilution gain) for the same period last year.

- 3 -


Comment by Raymond K F Ch’ien, Chairman (continued) On 30 June 2008, our capital adequacy ratio and core capital ratio were 13.9 per cent and 11.3 per cent respectively, as calculated in accordance with the ‘foundation internal ratings-based approach’ under Basel II. The Directors have declared a second interim dividend of HK$1.10 per share, payable on 4 September 2008. This brings the total distribution for the first half of 2008 to HK$2.20 per share, the same as in the first half of 2007. Outlook Looking ahead, economic growth in Hong Kong and on the Mainland will likely be affected by the US economic slowdown as well as growing inflationary pressures. The global credit crunch and surging oil prices will continue to exert pressure on major industrialised economies, which may impact activity in Hong Kong’s external sector. However, domestic demand remains resilient on the back of the tight employment market and relatively low interest rate environment, pointing to moderate expansion. Despite the Sichuan earthquake and mounting inflationary pressures, the Mainland is still on track to achieve solid growth this year – exports will face increasing challenges but private consumption is holding up well. Investments in people, IT and our mainland network have strengthened our operational capabilities and provide a good foundation for the continued development of our business. We will further leverage our competitive strengths – particularly our strong brand, market leadership position and comprehensive portfolio of products and services – to achieve sustainable growth.

- 4 -


Review by Raymond C F Or, Vice-Chairman and Chief Executive In a less favourable operating environment, Hang Seng made good progress in the first half of 2008, recording income growth across all core customer groups. We maintained leadership in wealth management by strengthening our retirement planning proposition and using our time-to-market competitive advantage. We rolled out new products to reflect changing investor sentiment, including Hong Kong’s first Securities and Futures Commission-authorised mainland China bond fund, a Taiwan index fund and several capital-protected instruments. We took successful steps to expand higher-yield credit cards and commercial lending. Treasury achieved impressive growth, reflecting supportive interest rate conditions and further success with income diversification efforts. Commercial Banking leveraged its strong customer relationship capabilities to record encouraging rises in average customer advances and corporate wealth management business. It also enhanced its ‘one-stop’ service for customers operating in Hong Kong and on the Mainland. Corporate Banking developed initiatives to expand non-interest income and capitalised on opportunities for the upward repricing of loans. Our mainland business recorded good increases in the customer bases and deposits, underpinned by Hang Seng Bank (China) Limited’s expanding network of outlets in high-growth regions, the launch of new investment products and strengthened service capabilities. Customer Groups With outstanding results achieved last year, Personal Financial Services maintained its good earnings in more challenging market conditions. Profit before tax was HK$5,284 million – a slight increase of 0.1 per cent year on year. Operating profit excluding loan impairment charges dropped by 4.4 per cent to HK$5,141 million. Excluding Private Banking, Personal Financial Services’ profit before tax grew by 5 per cent. Wealth management business continued to grow, recording a 2.2 per cent rise in income compared with a year earlier to reach HK$3,518 million. We expanded our range of investment products, enhanced online services, launched new marketing campaigns, and strengthened cross-referral mechanisms. This led to an encouraging increase in our number of investment services customers as well as rises in income from structured product sales, securities-related services and investment fund business. Following strong growth last year, Private Banking was adversely affected by weak investment sentiment. Refinements to relationship management teams supported a 15.4 per cent increase in the customer base, but customer transactions fell in the more uncertain market conditions, resulting in a 44.5 per cent drop in wealth management income.

- 5 -


Review by Raymond C F Or, Vice-Chairman and Chief Executive (continued) Our broad range of retirement planning solutions facilitated a 44.9 per cent rise in net earned life insurance premiums. Our new enJoy credit card and well-developed card loyalty scheme underpinned encouraging increases in the cards in issue, spending and receivables. Personal loans grew by 39 per cent year on year. Despite strong competition, we maintained our market share for mortgage business, achieving double-digit lending growth. Commercial Banking’s operating profit excluding loan impairment charges grew by 13.3 per cent to HK$1,219 million. Including the share of profits from associates, profit before tax rose by 32.5 per cent to HK$1,703 million. Our strong relationship management teams and expanding product range drove good growth in the corporate wealth management business, which increased its contribution to Commercial Banking’s total operating income by 1.8 percentage points compared with a year earlier to reach 11.2 per cent. Net fee income and trading income rose by 14.9 per cent and 68.9 per cent respectively. The establishment of new teams to serve specific customer segments facilitated a 67.8 per cent increase in investment and treasury income. Enhanced offerings for retailers, particularly our Octopus card merchant services, helped us grow our number of new commercial customers by 13.5 per cent in the first half of the year. Commercial Banking teams in Hong Kong stepped up efforts with their mainland and Macau counterparts to provide ‘joined-up’ services to middle-market enterprises. This contributed to good increases in average customer advances and deposits on the Mainland. Corporate Banking achieved a 90.1 per cent increase in profit before tax to HK$365 million, underpinned by a 30.4 per cent rise in net interest income as well as lower loan impairment charges. In the tightening credit market, we took good advantage of opportunities to reprice credit facilities. Operating profit excluding loan impairment charges was up 22.5 per cent at HK$365 million. Treasury achieved an impressive 272.4 per cent increase in operating profit to HK$1,698 million. Profit before tax, including share of profits from associates, rose 247.3 per cent to HK$1,983 million. Treasury’s net interest income grew strongly by HK$1,129 million, or 277.4 per cent, to reach HK$1,536 million. We took further steps to grow income from proprietary trading and customer-driven business by exploring new trading opportunities, strengthening product development capabilities and deepening relationships with customers. Reduced investor appetite for equities facilitated the successful promotion of foreign exchange and interest rate-linked products and capital-protected investment instruments. Treasury’s trading income grew by 80.4 per cent to reach HK$294 million.

- 6 -


Review by Raymond C F Or, Vice-Chairman and Chief Executive (continued) Mainland Business Hang Seng China opened seven sub-branches during the first half of 2008, taking its number of outlets to 30 across nine cities. To support this expansion and drive future growth, its number of full-time equivalent staff rose by 19.6 per cent to 1,312. The launch of new wealth management products helped us to increase our Prestige Banking mainland customer base by 74 per cent compared with the end of 2007, while the establishment in May of our first commercial sub-branch in ChangAn county in Dongguan is helping us capture new Commercial Banking business. Overall, our number of customers on the Mainland grew by 36 per cent. Along with increased marketing, improved cross-group referrals and closer collaboration between mainland and Hong Kong teams, this drove a 94.1 per cent increase in deposits compared with last year-end. Lending rose by 14.7 per cent. Year on year, deposits and advances were up 292.5 per cent and 55 per cent respectively. Total operating income increased by 66.9 per cent. Profit before tax was up 23.3 per cent, affected in part by investments in expanding the network and headcount as well as a foreign exchange loss on the revaluation of US dollar capital held by Hang Seng China against the renminbi. Including our share of profits from Industrial Bank, mainland business contributed 9.4 per cent of total profit before tax, compared with 5.9 per cent and 7 per cent in the first and second halves of 2007 respectively. On 31 January 2008, we signed an agreement to subscribe for 20 per cent of the enlarged share capital of Yantai City Commercial Bank – one of the largest city commercial banks in Shandong Province – for a total consideration of RMB800 million. Upon completion of the acquisition, we will strengthen our foothold in the rapidly developing Bohai Economic Rim region. Looking Ahead Hang Seng’s 2008 interim results reflect our competitive strength in changing market conditions. We will continue to invest and build on our strength in wealth management, using our comprehensive range of products and services, well-established brand and leading market position as a springboard to achieve continued growth.

- 7 -


Review by Raymond C F Or, Vice-Chairman and Chief Executive (continued) We will step up customer acquisitions in the affluent segment by opening more Prestige Banking centres and concentrating on tailor-made wealth management solutions. We will increase our market share among younger customers by offering convenient, fast and environmentally friendly banking services with a strong emphasis on electronic channels. We will capitalise on our large base of commercial customers in Hong Kong and growing mainland capabilities to become the bank of choice for Greater China business flows. We will take more steps to ‘join up’ Hong Kong and mainland Commercial Banking teams to deliver seamless banking services wherever customers do business. Supported by our strong relationship management structures, we will expand our corporate wealth management business. In Corporate Banking, we will focus on further income diversification and seek opportunities to improve yields on our loan portfolio. We will build on the good progress made in developing a more balanced and diversified Treasury income base. We will streamline service delivery, strengthen cross-group cooperation to broaden and deepen product penetration, and further explore emerging opportunities on the Mainland. Through Hang Seng China, we will pursue new avenues of business to increase our customer base. We will grow our wealth management business and expand our deposit base by opening more outlets in cities with good growth potential, expanding renminbi product offerings and accelerating brand-building initiatives. By the end of this year, we will have new branches in Tianjin and Kunming and more sub-branches in key cities. We will capitalise on the synergies created by our strategic partnerships to good effect. We will remain vigilant in identifying and managing credit risk. We have established an excellent platform for future expansion. Supported by our strong brand, premium customer service and good market knowledge, we will continue to grow our core businesses, generate increasing value for shareholders and enhance our position as a leading financial institution in Greater China.

- 8 -


Results summary Hang Seng Bank Limited (‘the bank’) and its subsidiaries and associates (‘the group’) reported an unaudited profit attributable to shareholders of HK$9,064 million for the first half of 2008, a rise of 2.2 per cent over the first half of 2007. Earnings per share were HK$4.74, up HK$0.10 from the first half of 2007. Excluding the dilution gain arising from the bank’s strategic investment in Industrial Bank Co., Ltd. (‘Industrial Bank’) in the first half of 2007, profit attributable to shareholders increased by 22.5 per cent. - Operating profit excluding loan impairment charges and other credit risk provisions rose by HK$1,247 million, or 15.5 per cent, to HK$9,300 million, a robust performance riding in part on the momentum and record-breaking results achieved last year. This growth reflects a significant rise in net interest income and sustained leadership in wealth management business in less favourable market conditions. - Net interest income grew by HK$1,556 million, or 23.2 per cent, with an increase of 6.8 per cent in average interest-earning assets. Net interest income also benefited from improved loan spreads and better yields on Treasury balance sheet management portfolios, which outweighed the drop in contribution from net free funds due to the fall in market interest rates. Net interest margin for the first half of 2008 was 2.43 per cent – up 32 basis points compared with the same period last year. Net interest spread improved by 48 basis points to 2.20 per cent while contribution from net free funds declined by 16 basis points to 0.23 per cent. - Net fees and commissions rose by HK$165 million, or 5.8 per cent, to HK$3,027 million. The group’s dedicated efforts to continue expanding fee-based income proved rewarding. Against a backdrop of slower stock market activity due to uncertainty over the global credit crunch and rising crude oil prices, encouraging growth was registered in income from stockbroking and related services (9.5 per cent), sales of retail investment funds (6.2 per cent) and sales of third-party structured investment products (19.3 per cent). Credit card business continued to gain market share in terms of cards in issue, spending and receivables to achieve remarkable income growth of 29.0 per cent. Income from remittances and trade services grew by 17.6 per cent and 5.3 per cent respectively. Private banking investment services fee income fell significantly by 46.8 per cent. The downturn in equities markets resulted in dampened customer appetite for investment and reduced transaction volume exacerbated by declining asset values. - Trading income improved by HK$175 million, or 30.0 per cent, to HK$759 million. Foreign exchange income rose by 35.8 per cent, attributable to increased customer activity and good trading opportunities captured by Treasury under the volatile market conditions. This increase was affected by the exchange loss on forward contracts used in ‘funding swap’ activities in the balance sheet management portfolios and on the revaluation of certain US dollar capital funds – maintained in the bank’s mainland subsidiary bank and subject to regulatory controls – against the appreciating renminbi. Excluding these unfavourable factors, foreign exchange income registered remarkable growth of 57.5 per cent. Securities, derivatives and other trading income grew by 17.9 per cent as a result of the group expanding its treasury product portfolio and higher demand for equity-linked investment products.

- 9 -


Results summary (continued) - Income from insurance business, including net earned insurance premiums, net interest income, net fee income and net income from financial instruments designated at fair value, the change in present value of in-force business, and after deducting net insurance claims incurred and movement in policyholders’ liabilities, fell by 8.2 per cent to HK$1,009 million. Life insurance business continued to gain market share and was ranked first in Hong Kong in terms of new annualised regular life insurance premiums for the first quarter of 2008. Our expanding range of products – particularly for retirement planning – drove strong growth in new annualised premiums. This underpinned the 44.9 per cent rise in net earned life insurance premiums to HK$6,774 million. Net interest income and fee income from life insurance business grew by 40.1 per cent due to the increase in investment portfolio size. However, investment returns on life insurance funds were adversely affected by the poorly performing global capital markets. - Net operating income before loan impairment charges and other credit risk provisions increased by HK$1,653 million, or 15.1 per cent, to HK$12,620 million, reflecting the group’s core profitability across a wide range of products and customer segments. - Operating expenses rose by HK$406 million, or 13.9 per cent, compared with the first half of 2007, driven principally by further investments in mainland network expansion and business development in Hong Kong and on the Mainland. These investments supported growth, with net operating income before loan impairment charges outpacing the increase in costs. This helped the bank to improve its cost efficiency ratio, which fell by 0.3 percentage points to 26.3 per cent. The bank’s mainland operations accounted for HK$159 million, or 39.3 per cent, of the increase in operating expenses, reflecting the expansion of the mainland network of our wholly owned banking subsidiary, Hang Seng Bank (China) Ltd (‘Hang Seng China’), from 23 to 30 outlets as well as its rise in net headcount from 1,097 to 1,312 during the first half of 2008. Excluding mainland operations, operating expenses increased by 9.1 per cent, due mainly to increased headcount and annual salary increments, as well as rises in rents, IT costs, depreciation and marketing expenses. - Operating profit grew by HK$1,339 million, or 17.2 per cent, to HK$9,112 million, after accounting for the HK$92 million reduction in loan impairment charges and other credit risk provisions. - Profit before tax was up 3.1 per cent at HK$10,530 million after taking the following items into account:

• a 10.2 per cent fall in gains less losses from financial investments and fixed assets; • the non-recurrence of the HK$1,465 million gain on dilution of investment in an

associate related to the listing of Industrial Bank in the first half of last year; • a 13.9 per cent decrease in net surplus on property revaluation; and • a 114.3 per cent rise in share of profits from associates, mainly contributed by

Industrial Bank.

- 10 -


Results summary (continued) Balance sheet and key ratios Total assets increased by HK$1.9 billion, or 0.3 per cent, to HK$747.9 billion. Customer advances rose by 9.3 per cent with encouraging growth in commercial lending, trade finance, mainland lending and personal loans. In a competitive operating environment, the bank took good advantage of opportunities to grow its residential mortgage lending in the active property market in the first half of the year. Interbank placing rose 20.8 per cent while investment in money market instruments fell by 24.4 per cent, reflecting a strategy of identifying quality investment opportunities to optimise returns while prudently managing risk. Customer deposits fell marginally by HK$10.5 billion, or 1.8 per cent, to HK$580.1 billion in the low interest rate environment. At 30 June 2008, the advances-to-deposits ratio was 58.1 per cent, compared with 52.2 per cent and 55.7 per cent at the end of December 2007 and June 2007 respectively. As at 30 June 2008, shareholders’ funds (excluding proposed dividends) were HK$53,505 million, an increase of HK$2,785 million, or 5.5 per cent. Retained profits rose by HK$4,485 million, reflecting the increase in attributable profit (excluding first and second interim dividends) for the first half of 2008. The adverse effects of the global credit market upheaval led to a decline in the available-for-sale investments reserve. The return on average total assets was 2.4 per cent, compared with 2.5 per cent for the first half of 2007. The return on average shareholders’ funds was 32.8 per cent (36.6 per cent, or 30.5 per cent excluding the gain on dilution, in the first half of 2007). On 30 June 2008, the capital adequacy ratio was 13.9 per cent, up from 11.2 per cent at the end of 2007. The core capital ratio was 11.3 per cent, up from 8.4 per cent. The ratios were calculated in accordance with the Banking (Capital) Rules issued by the Hong Kong Monetary Authority (‘HKMA’) for the implementation of Basel II. In December 2007, the bank obtained the HKMA’s approval to adopt the more sophisticated ‘foundation internal ratings-based approach’ under the Basel II framework to calculate its capital ratios, effective from 1 January 2008. The capital adequacy ratio and core capital ratio at 31 December 2007 were, however, calculated using the ‘standardised (credit risk) approach’ under the Basel II framework. As there are significant differences between the two approaches, the capital ratios of the two reporting periods are not directly comparable. The bank maintained a strong liquidity position. The average liquidity ratio for the first half of 2008 was 47.3 per cent (calculated in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance), compared with 52.9 per cent for the first half of 2007. The cost efficiency ratio for the first half of 2008 was 26.3 per cent, compared with 26.6 per cent for both the first and second halves of 2007. Dividends The Directors have declared a second interim dividend of HK$1.10 per share, which will be payable on 4 September 2008 to shareholders on the register of shareholders as of 20 August 2008. Together with the first interim dividend, the total distribution for the first half of 2008 will amount to HK$2.20 per share, the same as in the first half of 2007.

- 11 -


Customer group performance Personal Inter- Financial Commercial Corporate segment Figures in HK$m Services Banking Banking Treasury Other elimination Total Half-year ended 30 June 2008 Net interest income 4,295 1,211 442 1,536 768 __ 8,252 Net fee income/(expense) 2,380 547 61 (17 ) 56 __ 3,027 Trading income/(loss) 485 125 8 294 (153 ) __ 759 Net (loss)/income from financial instruments designated at fair value (1,029 ) (1 ) __ 6 __ __ (1,024 ) Dividend income 17 5 __ __ 32 __ 54 Net earned insurance premiums 6,832 96 2 __ __ __ 6,930 Other operating income/(loss) 435 24 __ (1 ) 67 __ 525 Inter-segment income __ __ __ __ 233 (233 ) __ Total operating income 13,415 2,007 513 1,818 1,003 (233 ) 18,523 Net insurance claims incurred and movement in policyholders’ liabilities (5,843 ) (59 ) (1 ) __ __ __ (5,903 ) Net operating income before loan impairment charges and other credit risk provisions 7,572 1,948 512 1,818 1,003 (233 ) 12,620 Loan impairment charges and other credit risk provisions (86 ) (71 ) (31 ) __ __ __ (188 ) Net operating income 7,486 1,877 481 1,818 1,003 (233 ) 12,432 Total operating expenses (2,237 ) (699 ) (143 ) (115 ) (126 ) __ (3,320 ) Inter-segment expenses (194 ) (30 ) (4 ) (5 ) __ 233 __ Operating profit 5,055 1,148 334 1,698 877 __ 9,112 Gains less losses from financial investments and fixed assets 175 96 31 __ (56 ) __ 246 Net surplus on property revaluation __ __ __ __ 229 __ 229 Share of profits from associates 54 459 __ 285 145 __ 943 Profit before tax 5,284 1,703 365 1,983 1,195 __ 10,530 Share of profit before tax 50.2 % 16.2 % 3.5 % 18.8 % 11.3 % __ 100.0 % Operating profit excluding inter-segment transactions 5,249 1,178 338 1,703 644 __ 9,112 Operating profit excluding loan impairment charges and other credit risk provisions 5,141 1,219 365 1,698 877 __ 9,300 Depreciation/amortisation

included in total operating expenses (64 ) (11 ) (3 ) (2 ) (148 ) __ (228 ) At 30 June 2008 Total assets 210,593 93,416 85,595 320,004 38,308 __ 747,916 Total liabilities 473,224 96,559 46,288 37,937 38,300 __ 692,308 Investments in associates 379 2,412 __ 1,923 2,435 __ 7,149 Capital expenditure incurred during the period 203 25 6 2 131 __ 367

Hang Seng Bank Limited

- 12 -

__________________________________________________________________________________________ Customer group performance (continued) Personal Inter- Financial Commercial Corporate segment Figures in HK$m Services Banking Banking Treasury Other elimination Total Half-year ended 30 June 2007 Net interest income 4,142 1,119 339 407 689 __ 6,696 Net fee income/(expense) 2,307 476 54 (11 ) 36 __ 2,862 Trading income/(loss) 358 74 4 163 (15 ) __ 584 Net income/(loss) from financial instruments designated at fair value 689 __ __ (3 ) __ __ 686 Dividend income 6 __ __ __ 20 __ 26 Net earned insurance premiums 4,741 79 1 __ __ __ 4,821 Other operating income 300 25 __ __ 72 __ 397 Inter-segment income __ __ __ __ 187 (187 ) __ Total operating income 12,543 1,773 398 556 989 (187 ) 16,072 Net insurance claims incurred and movement in policyholders’ liabilities (5,061 ) (44 ) __ __ __ __ (5,105 ) Net operating income before loan impairment charges and other credit risk provisions 7,482 1,729 398 556 989 (187 ) 10,967 Loan impairment charges and other credit risk provisions (122 ) (45 ) (113 ) __ __ __ (280 ) Net operating income 7,360 1,684 285 556 989 (187 ) 10,687 Total operating expenses (1,939 ) (636 ) (97 ) (96 ) (146 ) __ (2,914 ) Inter-segment expenses (163 ) (17 ) (3 ) (4 ) __ 187 __ Operating profit 5,258 1,031 185 456 843 __ 7,773 Gain on dilution of investment in associate __ __ __ __ 1,465 __ 1,465 Gains less losses from financial investments and fixed assets __ __ 7 __ 267 __ 274 Net surplus on property revaluation __ __ __ __ 266 __ 266 Share of profits from associates 20 254 __ 115 51 __ 440 Profit before tax 5,278 1,285 192 571 2,892 __ 10,218 Share of profit before tax 51.7 % 12.6 % 1.8 % 5.6 % 28.3 % __ 100.0 % Operating profit excluding inter-segment transactions 5,421 1,048 188 460 656 __ 7,773 Operating profit excluding loan impairment charges and other credit risk provisions 5,380 1,076 298 456 843 __ 8,053 Depreciation/amortisation

included in total operating expenses (56 ) (8 ) (2 ) (1 ) (113 ) __ (180 )

At 30 June 2007 Total assets 191,312 74,766 82,688 353,011 39,545 __ 741,322 Total liabilities 432,416 93,988 51,983 70,109 39,878 __ 688,374 Investments in associates 155 1,951 __ 880 2,293 __ 5,279 Capital expenditure incurred during the period 135 43 8 3 29 __ 218


- 13 -

__________________________________________________________________________________________ Customer group performance (continued) Personal Inter- Financial Commercial Corporate segment Figures in HK$m Services Banking Banking Treasury Other elimination Total Half-year ended 31 December 2007 Net interest income 4,559 1,245 380 905 934 __ 8,023 Net fee income/(expense) 3,419 529 55 (14 ) 35 __ 4,024 Trading income/(loss) 728 99 5 305 (42 ) __ 1,095 Net income from financial instruments designated at fair value 1,212 2 __ 7 __ __ 1,221 Dividend income 8 1 __ __ 17 __ 26 Net earned insurance premiums 4,778 102 1 __ __ __ 4,881 Other operating income/(loss) 243 22 __ (3 ) 88 __ 350 Inter-segment income __ __ __ __ 186 (186 ) __ Total operating income 14,947 2,000 441 1,200 1,218 (186 ) 19,620 Net insurance claims incurred and movement in policyholders’ liabilities (5,523 ) (48 ) (1 ) __ __ __ (5,572 ) Net operating income before loan impairment charges and other credit risk provisions 9,424 1,952 440 1,200 1,218 (186 ) 14,048 Loan impairment charges and other credit risk provisions (155 ) (120 ) (21 ) __ __ __ (296 ) Net operating income 9,269 1,832 419 1,200 1,218 (186 ) 13,752 Total operating expenses (2,503 ) (801 ) (137 ) (118 ) (177 ) __ (3,736 ) Inter-segment expenses (162 ) (17 ) (3 ) (4 ) __ 186 __ Operating profit 6,604 1,014 279 1,078 1,041 __ 10,016 Gains less losses from financial investments and fixed assets 4 1 4 __ 433 __ 442 Net surplus on property revaluation __ __ __ __ 113 __ 113 Share of profits from associates 32 401 __ 180 69 __ 682 Profit before tax 6,640 1,416 283 1,258 1,656 __ 11,253 Share of profit before tax 59.0 % 12.6 % 2.5 % 11.2 % 14.7 % __ 100.0 % Operating profit excluding inter-segment transactions 6,766 1,031 282 1,082 855 __ 10,016 Operating profit excluding loan impairment charges and other credit risk provisions 6,759 1,134 300 1,078 1,041 __ 10,312 Depreciation/amortisation

included in total operating expenses (62 ) (13 ) (3 ) (2 ) (121 ) __ (201 ) At 31 December 2007 Total assets 190,696 80,479 79,419 358,306 37,099 __ 745,999 Total liabilities 459,756 100,857 53,373 42,486 33,071 __ 689,543 Investments in associates 201 2,520 __ 1,138 2,318 __ 6,177 Capital expenditure incurred during the period 91 33 13 __ 186 __ 323


- 14 -

__________________________________________________________________________________________ Customer group performance (continued) Personal Financial Services (‘PFS’) maintained its year-on-year earnings with a slight increase of 0.1 per cent in profit before tax to HK$5,284 million for the first half of 2008. Operating profit excluding loan impairment charges was down 4.4 per cent at HK$5,141 million. Excluding Private Banking, Personal Financial Services’ profit before tax grew by 5 per cent. Net interest income recorded moderate growth of 3.7 per cent, supported by stable customer deposit balances. Non-interest income declined slightly by 1.9 per cent. Wealth management income was negatively affected by the economic slowdown and subsequent market volatility, but insurance was able to maintain its sales momentum. In the first half of 2008, new annualised life insurance premiums exceeded HK$2 billion, underpinning the 44.9 per cent rise in net earned insurance premiums. In the first quarter of the year, the group’s life insurance business ranked number one in Hong Kong in terms of new business, with a market share of 16.2 per cent. Total operating income from unsecured lending recorded significant year-on-year growth of 32.5 per cent as the bank’s credit card business continued to gain market share in terms of cards in force, spending and receivables. The launch of a new credit card employing innovative contactless payment technology and a series of promotion campaigns helped drive the number of cards in issue to 1.64 million, representing year-on-year growth of 13.9 per cent. Card receivables grew strongly by 19.3 per cent year on year to reach HK$11.7 billion, attributable mainly to successful card utilisation campaigns and robust consumer spending. Personal lending also registered impressive growth with a 39.0 per cent year-on-year increase in loan balances to HK$3.2 billion.

Residential mortgage business benefited from market anticipation of asset price inflation, achieving double-digit growth in first half of the year. Despite the recent market slowdown, the bank maintained its market share in terms of total mortgage loans outstanding at around 16.0 per cent and secured the number two position in new mortgage loan drawdowns for the first half of 2008. Commercial Banking (‘CMB’) achieved an increase of 13.3 per cent in operating profit excluding loan impairment charges, underpinned by satisfactory growth in net fee income and net trading income. Taking into account the contribution from Industrial Bank, profit before tax rose by 32.5 per cent to HK$1,703 million, representing 16.2 per cent of the group’s total profit before tax. Average customer advances rose by 21.9 per cent as a result of balanced growth in lending to the manufacturing, wholesale and retail and property sectors, and increases in trade finance and factoring. This good growth was partly offset by the narrowing of deposit margins, resulting in a moderate rise of 8.2 per cent in net interest income.

- 15 -


Customer group performance (continued) Driven by concerted efforts to grow corporate wealth management business, net fee income and net trading income reported good growth of 14.9 per cent and 68.9 per cent respectively. Corporate wealth management income contributed 11.2 per cent of CMB’s total operating income in the first half of 2008, up 1.8 percentage points compared with the first half of 2007. With the establishment of designated corporate teams to serve the diverse investment needs of different customer segments, investment and treasury income registered robust growth of 67.8 per cent compared with the first half of 2007. CMB’s efforts to offer enhanced services to customers in the retail sector continued to generate positive returns. Net fee income from card merchant-acquiring business achieved strong growth of 10.9 per cent. Octopus card merchant services helped to strengthen the bank’s franchise in the small and medium-sized enterprise (‘SME’) sector, as evidenced by the fact that 70 per cent of Octopus merchants acquired in the first half of 2008 were new customers for the bank. Overall, the number of new commercial customers acquired in the first half of 2008 grew by 13.5 per cent. CMB continued to strengthen its relationships with middle-market enterprises (‘MME’). The collaborative efforts of the Hong Kong, Mainland and Macau teams have put CMB in a better position to provide one-stop banking solutions for MME customers with operations in the Pearl River Delta, Yangtze River Delta and Bohai Economic Rim regions. Average customer deposits and average customer advances on the Mainland registered strong growth of 324.0 per cent and 119.5 per cent respectively. The establishment of Hang Seng China’s first commercial banking sub-branch at ChangAn, Dongguan, in June 2008, will help further to extend CMB’s catchment area in the region. At 30 June 2008, over 57,000 customers had registered for Business e-Banking services, an increase of 30.8 per cent compared to the same period in 2007. The number of online business banking transactions grew by 31.7 per cent. Corporate Banking (‘CIB’) achieved an increase of 22.5 per cent in operating profit excluding loan impairment charges, driven largely by satisfactory growth of 30.4 per cent in net interest income. CIB continued to focus on liability-driven business and higher-yield loan transactions. Average customer deposits rose by 16.2 per cent. Average customer advances were up 10.3 per cent, due mainly to increased lending to real estate companies, hotels and investment holding companies. Profit before tax rose strongly by HK$173 million, or 90.1 per cent, to HK$365 million. CIB remained active in financing mainland projects of Hong Kong-based corporations during 2008 and continued to expand its mainland customer base. Average customer deposits and average customer advances on the Mainland recorded encouraging growth of 354.7 per cent and 32.1 per cent respectively. Treasury (‘TRY’) reported a strong 272.4 per cent growth in operating profit. Profit before tax, taking into account the increase in share of profits from associates, rose by 247.3 per cent to HK$1,983 million, contributing 18.8 per cent to the group’s total profit before tax.

- 16 -


Customer group performance (continued) Benefiting from the rate cut cycle in the United States that began in September 2007, the interest margin of balance sheet management portfolios improved significantly. Coupled with good portfolio positioning and a prudent strategy of investing in high quality instruments, net interest income from balance sheet management portfolios registered remarkable growth of HK$1,129 million, or 277.4 per cent. Including the net increase of HK$82 million in funding swap costs (described below) – which were recognised as foreign exchange losses – net interest income rose by HK$1,047 million, or 475.9 per cent.

Trading income reversed its declining trend of 2007 to record growth of HK$131 million, or 80.4 per cent, attributable mainly to foreign exchange and derivative trading activities. This good trading income result was partly offset by the mirror effect of ‘funding swap’ activities in the balance sheet management portfolios, which reported a loss of HK$269 million in the first six months of 2008. Excluding the impact of such activities, trading income increased by HK$213 million.

Treasury from time to time employs foreign exchange swaps for its funding activities, which in essence involve swapping a currency (‘original currency’) into another currency (‘swap currency’) at the spot exchange rate for short-term placement and simultaneously entering into a forward exchange contract to convert the funds back to the original currency on maturity of the placement. In accordance with HKAS39, the exchange difference of the spot and forward contracts is required to be recognised as a foreign exchange gain/loss, while the corresponding interest differential between the original and swap funding is reflected in net interest income.

- 17 -


Mainland business Headquartered in Shanghai, the bank’s mainland subsidiary, Hang Seng China, marked its first anniversary in May 2008. At 30 June 2008, Hang Seng China’s network had grown from 23 to 30 outlets since the end of 2007, comprising nine branches and 21 sub-branches operating across nine cities: Beijing, Shanghai, Guangzhou, Dongguan, Shenzhen, Fuzhou, Nanjing, Hangzhou and Ningbo. The bank has a branch in Shenzhen for foreign currency wholesale business and a representative office in Xiamen. To support expansion and strengthen sales and marketing capabilities, Hang Seng China’s number of full-time equivalent staff increased by 215 to 1,312 in the first half of 2008. Supported by the robust mainland economy, Hang Seng China capitalised on new opportunities to grow its business by offering a comprehensive range of premium banking services, including renminbi services. Mainland lending grew by 14.7 per cent compared with the end of last year. The launch of full renminbi deposit services for local residents and new investment-linked deposit products contributed to the strong 94.1 per cent increase in customer deposits during the first half of 2008. Year on year, deposits and advances were up 292.5 per cent and 55.0 per cent respectively. Total operating income rose by 66.9 per cent, representing good growth in both interest income and non-interest income. The combined effects of the cost of network expansion, investment in human resources, a foreign exchange loss on the revaluation of US dollar capital funds held by Hang Seng China against the renminbi, and a decline in loan impairment charges, resulted in a 23.3 per cent increase in profit before tax. Mainland PFS successfully grew its share of the mass affluent and affluent segments, expanding its customer base by 38 per cent since the end of last year and enjoying particular success with Prestige Banking, which recorded a 74 per cent increase in customers. Leveraging the bank’s well-established corporate customer base in Hong Kong, Hang Seng China’s CMB and CIB teams collaborated closely with their Hong Kong counterparts to offer ‘joined-up’ services to customers with operations in Hong Kong and on the Mainland, helping to expand the commercial customer base and renminbi business. TRY continued to manage the funding positions of the branches and launched new structured investment products to meet a wide range of customer needs. Including the bank’s share of profit from Industrial Bank, mainland business contributed 9.4 per cent of total profit before tax, compared with 5.9 per cent and 7.0 per cent for the first and second halves of 2007 respectively.

- 18 -

Hang Seng Bank Limited Contents__________________________________________________________________________________________

The financial information in this news release is based on the unaudited consolidated financial statements of Hang Seng Bank Limited (‘the bank’) and its subsidiaries and associates (‘the group’) for the six months ended 30 June 2008. 1 Highlights of Results 2 Chairman’s Comment 4 Chief Executive’s Review 8 Results Summary 11 Customer Group Performance 17 Mainland Business 18 Contents 20 Consolidated Income Statement 21 Consolidated Balance Sheet 22 Consolidated Statement of Recognised Income and Expense 23 Consolidated Cash Flow Statement 24 Financial Review

24 Net interest income 26 Net fee income 27 Trading income 28 Other operating income 28 Analysis of income from wealth management business 31 Loan impairment charges and other credit risk provisions 32 Operating expenses 33 Gains less losses from financial investments and fixed assets 33 Gain on dilution of investment in associate 34 Tax expense 35 Earnings per share 35 Dividends per share 35 Segmental analysis 38 Cash and balances with banks and other financial institutions 38 Placings with and advances to banks and other financial institutions 38 Trading assets 39 Financial assets designated at fair value 39 Advances to customers 40 Loan impairment allowances against advances to customers 41 Impaired advances and allowances 42 Overdue advances 43 Rescheduled advances

43 Segmental analysis of advances to customers by geographical area 44 Gross advances to customers by industry sector

46 Financial investments 46 Investments in associates 47 Other assets 47 Current, savings and other deposit accounts 48 Certificates of deposit and other debt securities in issue 48 Trading liabilities 49 Other liabilities 49 Subordinated liabilities 50 Shareholders’ funds

- 19 -

Hang Seng Bank Limited Contents

(continued)__________________________________________________________________________________________

51 Capital resources management 52 Liquidity ratio 53 Reconciliation of cash flow statement 54 Contingent liabilities, commitments and derivatives 58 Statutory accounts and accounting policies 58 Comparative figures 58 Acquisition 59 Property revaluation 59 Foreign currency positions 60 Ultimate holding company 60 Register of shareholders 60 Proposed timetable for the remaining 2008 quarterly dividends 61 Code on corporate governance practices 61 Board of directors 61 News release

- 20 -

Hang Seng Bank Limited Consolidated Income Statement (unaudited)_________________________________________________________________________________________

Half-year ended Half-year ended Half-year ended 30 June 30 June 31 DecemberFigures in HK$m 2008 2007 2007 Interest income 13,665 16,318 18,088 Interest expense (5,413 ) (9,622 ) (10,065 )Net interest income 8,252 6,696 8,023 Fee income 3,368 3,163 4,519 Fee expense (341 ) (301 ) (495 )Net fee income 3,027 2,862 4,024 Trading income 759 584 1,095 Net (loss)/income from financial instruments designated at fair value (1,024 ) 686 1,221 Dividend income 54 26 26 Net earned insurance premiums 6,930 4,821 4,881 Other operating income 525 397 350 Total operating income 18,523 16,072 19,620 Net insurance claims incurred and movement in policyholders’ liabilities (5,903 ) (5,105 ) (5,572 )Net operating income before loan impairment charges and other credit risk provisions 12,620 10,967 14,048 Loan impairment charges and other credit risk provisions (188 ) (280 ) (296 )Net operating income 12,432 10,687 13,752 Employee compensation and benefits (1,736 ) (1,598 ) (1,987 )General and administrative expenses (1,356 ) (1,136 ) (1,548 )Depreciation of premises, plant and equipment (201 ) (169 ) (179 )Amortisation of intangible assets (27 ) (11 ) (22 )Total operating expenses (3,320 ) (2,914 ) (3,736 )Operating profit 9,112 7,773 10,016 Gain on dilution of investment in an associate __ 1,465 __ Gains less losses from financial investments and fixed assets 246 274 442 Net surplus on property revaluation 229 266 113 Share of profits from associates 943 440 682 Profit before tax 10,530 10,218 11,253 Tax expense (1,466 ) (1,150 ) (1,715 )Profit for the period 9,064 9,068 9,538

Profit attributable to shareholders 9,064 8,867 9,375 Profit attributable to minority interests __ 201 163 9,064 9,068 9,538

Dividends 4,206 4,206 7,839 Earnings per share (in HK$) 4.74 4.64 4.90 The HSBC Group reports interest income and interest expense arising from financial assets and financial liabilities held for trading as ‘Net trading income’ and arising from financial instruments designated at fair value through profit and loss as ‘Net income from financial instruments designated at fair value’ (other than for debt securities in issue and subordinated liabilities, together with derivatives managed in conjunction with them). The table below presents the interest income and interest expense of Hang Seng, as included within the HSBC Group accounts: Half-year Half-year Half-year endedFigures in HK$m 30 June 2008 30 June 2007 31 December 2007 Interest income 13,376 15,941 17,760Interest expense (4,679) (8,354) (8,989 )Net interest income 8,697 7,587 8,771Net interest income and expense reported as ‘Net trading (551) (938) (815 )Net interest income and expense reported as ‘Net income from financial instruments designated at fair value’ 106 47 67

- 21 -

Hang Seng Bank Limited Consolidated Balance Sheet (unaudited)__________________________________________________________________________________________

At 30 June At 30 June At 31 DecemberFigures in HK$m 2008 2007 2007 Assets Cash and balances with banks and other financial institutions 19,755 12,921 16,864Placings with and advances to banks and other financial institutions 136,534 94,485 113,029Trading assets 13,689 9,848 10,390Financial assets designated at fair value 12,607 9,827 13,892Derivative financial instruments 6,043 2,348 4,702Advances to customers 337,157 310,972 308,356Financial investments 184,654 251,191 244,294Investments in associates 7,149 5,279 6,177Investment properties 2,776 2,457 2,581Premises, plant and equipment 7,487 6,342 6,794Interest in leasehold land held for own use under operating lease 558 572 565Intangible assets 3,297 2,347 2,889Other assets 16,210 32,733 15,466 747,916 741,322 745,999 Liabilities Current, savings and other deposit accounts 535,148 512,450 546,653Deposits from banks 19,247 57,834 19,736Trading liabilities 53,767 44,294 48,151Financial liabilities designated at fair value 1,431 1,473 1,498Derivative financial instruments 8,882 2,118 4,683Certificates of deposit and other debt securities in issue 4,026 7,282 5,685Other liabilities 17,629 22,123 17,850Liabilities to customers under insurance contracts 38,737 27,942 33,089Deferred tax and current tax liabilities 4,086 3,485 2,844Subordinated liabilities 9,355 9,373 9,354 692,308 688,374 689,543 Capital resources Minority interests __ 1,917 __

Share capital 9,559 9,559 9,559Retained profits 37,358 32,706 32,873Other reserves 6,588 6,663 8,288Proposed dividends 2,103 2,103 5,736Shareholders’ funds 55,608 51,031 56,456 55,608 52,948 56,456 747,916 741,322 745,999

- 22 -

Hang Seng Bank Limited Consolidated Statement of Recognised Income and Expense (unaudited)__________________________________________________________________________________________

Half-year ended Half-year ended Half-year ended 30 June 30 June 31 DecemberFigures in HK$m 2008 2007 2007 Unrealised surplus on revaluation of premises, net of tax 467 218 225 Tax on realisation of revaluation surplus on disposal of premises 3 10 35 Available-for-sale investments reserve, net of tax: - fair value changes taken to equity -- on debt securities (1,353) (524 ) 95 -- on equity shares (1,080) 795 1,228- fair value changes transferred to income statement: -- on impairment 67 __ __ -- on hedged items (20) 73 (254) -- on disposal (368) (247 ) (197)Cash flow hedges reserve, net of tax: - fair value changes taken to equity 39 (127 ) 273 - fair value changes transferred to income statement (194) 141 77 Actuarial (losses)/gains on defined benefit plans, net of tax (423) 369 (1,612) Exchange differences on translation of financial statements of overseas branches, subsidiaries and associates 682 180 347 Effect of decrease in tax rate in deferred tax balance at 1 January 30 __ __ Net (expense)/income recognised directly in equity (2,150) 888 217 Profit for the period 9,064 9,068 9,538 Total recognised income and expense for the period 6,914 9,956 9,755 Attributable to shareholders 6,914 9,755 9,592 Attributable to minority interests __ 201 163 6,914 9,956 9,755

- 23 -

Hang Seng Bank Limited Consolidated Cash Flow Statement (unaudited)__________________________________________________________________________________________

Half-year ended Half-year ended 30 June 30 June Figures in HK$m 2008 2007 Net cash (outflow)/inflow from operating activities (44,918 ) 12,376 Cash flows from investing activities Dividends received from associates 258 195 Purchase of available-for-sale investments (27,368 ) (47,529)Purchase of held-to-maturity debt securities (134 ) (420)Proceeds from sale or redemption of available-for-sale investments 84,669 33,895 Proceeds from redemption of held-to-maturity debt securities 71 33 Purchase of fixed assets and intangible assets (367 ) (218)Proceeds from sale of fixed assets and asset held for sale 233 212 Interest received from available-for-sale investments 5,218 4,691 Dividends received from available-for-sale investments 54 10 Net cash inflow/(outflow) from investing activities 62,634 (9,131) Cash flows from financing activities Dividends paid (7,839 ) (5,736)Interest paid for subordinated liabilities (205 ) (212)Proceeds from subordinated liabilities __ 2,342 Net cash outflow from financing activities (8,044 ) (3,606) Increase/(decrease) in cash and cash equivalents 9,672 (361 ) Cash and cash equivalents at 1 January 113,474 90,275 Effect of foreign exchange rate changes 988 1,197 Cash and cash equivalents at 30 June 124,134 91,111

- 24 -

Hang Seng Bank Limited Financial Review__________________________________________________________________________________________

Net interest income

Half-year ended Half-year ended Half-year ended 30 June 30 June 31 December Figures in HK$m 2008 2007 2007 Net interest income/(expense) arising from: - financial assets and liabilities that are not at fair value through profit and loss 8,717 7,609 8,795 - trading assets and liabilities (551) (938 ) (815)- financial instruments designated at fair value 86 25 43 8,252 6,696 8,023 Average interest-earning assets 682,728 639,539 683,042 Net interest spread 2.20% 1.72 % 1.95%Net interest margin 2.43% 2.11 % 2.33% Net interest income rose by HK$1,556 million, or 23.2 per cent, to HK$8,252 million. Average interest-earning assets increased by HK$43.2 billion, or 6.8 per cent, to HK$682.7 billion. Average customer advances rose 12.7 per cent, with notable increases in mainland loans within regulatory limits, higher yielding card advances and personal loans and trade finance. An active property market boosted average mortgage lending, with strong volume growth more than offsetting the effect of tighter spreads on mortgages in the intensely competitive and low interest rate environment. Overall, the total loan portfolio contributed HK$529 million to the growth in net interest income. Deposit products contributed HK$34 million to the increase in net interest income, supported by the 7.8 per cent growth in average customer deposits, mainly low-cost savings balances. Under the low interest rate environment, spreads on time deposits were affected by a lower value of funds as there was little room for reduction on interest rates paid to customers, but this was compensated for the increase in low-cost savings balances. Treasury balance sheet management income recorded encouraging growth, contributing HK$1,269 million to net interest income. The accrual portfolio benefited from falling US dollar interest rates in the second half of 2007 which led to lower funding costs as well as Treasury’s strong positioning for capturing yield enhancement opportunities. The life insurance fund investments portfolio grew by 55.8 per cent, adding HK$173 million. Despite an increase in the level of net free funds (including non-interest bearing account balances and net shareholders’ funds), their contribution to net interest income fell by HK$449 million due to the decline in market interest rates.

- 25 -

Hang Seng Bank Limited Financial Review(continued)

__________________________________________________________________________________________ Net interest income (continued) Net interest margin rose by 32 basis points to 2.43 per cent. Net interest spread improved by 48 basis points to 2.20 per cent, benefiting from better yields on Treasury balance sheet management portfolios and improved spreads on lending business. The contribution from net free funds, however, dropped by 16 basis points to 0.23 per cent as a result of the fall in average interest rates. Including the net increase of HK$82 million in funding swap costs – which were recognised as foreign exchange losses under trading income – net interest income increased by HK$1,474 million, or 22.6 per cent, and net interest margin improved by 30 basis points to 2.35 per cent. Compared with the second half of 2007, net interest income improved by HK$229 million, or 2.9 per cent, with average interest-earning assets maintained at the same level. Net interest margin improved by 10 basis points. The HSBC Group reports interest income and interest expense arising from financial assets and financial liabilities held for trading as ‘Net trading income’. That arising from financial instruments designated at fair value through profit and loss is reported as ‘Net income from financial instruments designated at fair value’ (other than for debt securities in issue and subordinated liabilities, together with derivatives managed in conjunction with them). The table below presents the net interest income of Hang Seng, as included within the HSBC Group accounts: Half-year ended Half-year ended Half-year ended 30 June 30 June 31 December Figures in HK$m 2008 2007 2007 Net interest income 8,697 7,587 8,771 Average interest-earning assets 664,892 620,830 666,107 Net interest spread 2.33 % 1.87 % 2.08 %Net interest margin 2.63 % 2.46 % 2.61 %

- 26 -

Hang Seng Bank Limited Financial Review

(continued)__________________________________________________________________________________________

Net fee income

Half-year ended Half-year ended Half-year ended 30 June 30 June 31 DecemberFigures in HK$m 2008 2007 2007

- Stockbroking and related services 808 738 1,247 - Retail investment funds 773 728 948 - Structured investment products 297 249 412 - Insurance 54 56 59 - Account services 141 144 140 - Private banking 177 333 667 - Remittances 107 91 102 - Cards 623 483 565 - Credit facilities 60 56 54 - Trade services 199 189 217 - Other 129 96 108 Fee income 3,368 3,163 4,519 Fee expense (341 ) (301 ) (495 ) 3,027 2,862 4,024 Net fee income rose by HK$165 million, or 5.8 per cent, compared with the first half of 2007, to HK$3,027 million. With the slowdown of equities markets dampening investment market sentiment in Hong Kong, stockbroking and related services recorded good growth of 9.5 per cent. Income from retail investment funds increased by 6.2 per cent. Income from sales of structured investment products grew by 19.3 per cent, mainly reflecting sales of equity-linked instruments. Private banking investment services fee income was adversely affected, declining by 46.8 per cent, due largely to a lower transaction volume in the less favourable investment environment. Card services income grew significantly by 29.0 per cent, supported by the 13.9 per cent increase in the number of cards in circulation and the 19.3 per cent rise in cardholder spending year on year. The launch of the enJoy affinity credit card was extremely well received by the market, increasing the number of cards in issue by about 9.0 per cent. Remittance and trade services fees rose by 17.6 per cent and 5.3 per cent respectively. Compared with the second half of 2007, net fee income declined by HK$997 million, or 24.8 per cent, mainly reflecting dampened sentiment in the investment and stock markets in first half of 2008, compared with the buoyancy of the preceding six months.

- 27 -


(continued)__________________________________________________________________________________________

Trading income Half-year ended Half-year ended Half-year ended 30 June 30 June 31 DecemberFigures in HK$m 2008 2007 2007

Trading income: - foreign exchange 535 394 467- securities, derivatives and other trading activities 224 190 628 759 584 1,095 Trading income rose by HK$175 million, or 30.0 per cent, to HK$759 million, compared with the first half of 2007. The HK$141 million increase in foreign exchange income takes into account two specific items not related to normal foreign exchange trading. First, an exchange loss of HK$269 million was incurred in the first half of 2008 (HK$187 million in first half of 2007) on forward contracts used in ‘funding swap’ activities in the balance sheet management portfolios. Second, capital funds of Hang Seng China injected in US dollars and pending regulatory approval for conversion into renminbi were recorded at the historical rate. The subsequent revaluation loss on the US dollar funds against the renminbi – amounting to HK$185 million in the first half of 2008 (HK$47 million in first half of 2007) – was recognised as a foreign exchange loss. Excluding these two unfavourable items, normal foreign exchange trading returned excellent results, growing by HK$361 million, or 57.5 per cent, to HK$989 million, reflecting the bank’s ability successfully to capture opportunities to expand proprietary trading and customer-driven business. Income from securities, derivatives and other trading grew by HK$34 million, or 17.9 per cent, attributable to the improvement in trading results and the profit earned on equity-linked structured products. Treasury from time to time employs foreign exchange swaps for its funding activities, which

in essence involve swapping a currency (‘original currency’) into another currency (‘swap currency’) at the spot exchange rate for short-term placement and simultaneously entering into a forward exchange contract to convert the funds back to the original currency on maturity of the placement. In accordance with HKAS39, the exchange difference of the spot and forward contracts is required to be recognised as foreign exchange gain/loss, while the corresponding interest differential between the original and swap funding is reflected in net interest income.

- 28 -


(continued)__________________________________________________________________________________________

Other operating income Half-year ended Half-year ended Half-year ended 30 June 30 June 31 DecemberFigures in HK$m 2008 2007 2007

Rental income from investment properties 66 72 67 Movement in present value of in-force long-term insurance business 363 207 190 Other 96 118 93 525 397 350 Analysis of income from wealth management business


Investment income: - retail investment funds 773 728 948- structured investment products 689 511 981- private banking 187 337 672- securities broking and related services 808 738 1,247- margin trading and others 52 30 48 2,509 2,344 3,896Insurance income: - life insurance 862 943 1,112- general insurance and others 147 156 192 1,009 1,099 1,304Total 3,518 3,443 5,200

Income from structured investment products includes income reported under net fee income on the sales of third-party structured investment products. It also includes profit generated from the selling of structured investment products in issue, reported under trading income.

Income from private banking includes income reported under net fee income on investment services and profit generated from selling of structured investment products in issue, reported under trading income.

Wealth management business continued to make a major contribution to the Bank’s income. Leveraging its comprehensive portfolio of products and services, strong brand and leading market position, the bank continued to grow wealth management income in the first half, recording a rise of 2.2 per cent to HK$3,518 million in turbulent market conditions.

- 29 -


(continued)__________________________________________________________________________________________

Analysis of income from wealth management business (continued) Investment services income increased by 7.0 per cent, reflecting stable growth in securities broking and related services, retail investment funds and investment products, although this was partly offset by the decline in private banking income. Insurance income fell by 8.2 per cent, affected primarily by the investment loss on life insurance funds created by the slump in equities markets. Against a backdrop of depressed investment activity, the bank issued and launched a wide variety of investment funds to meet the changing risk appetites of investors. These included funds from both Hang Seng Investment Management and third-party providers. The timely rollout of Hong Kong’s first Securities and Futures Commission-authorised mainland China bond fund to capture emerging market opportunities reflects the bank’s efforts to enhance its product range to meet customer needs. Funds under management (excluding private banking) declined by 12.4 per cent to HK$71.8 billion compared with 2007 year-end, affected mainly by fund revaluation losses resulting from the volatile financial market conditions. Compared with the first half of 2007, investment fund income (including sales commissions and management fees) recorded steady growth of 6.2 per cent to HK$773 million. Throughout the first half, equities markets remained difficult and market value declined. The bank continued to make progress in distributing competitive structured products packaged by both Hang Seng and third-party providers to broaden the range of investment options available to customers and offer yield enhancement. This proved a successful strategy, with structured investment product income registering a 34.8 per cent rise, related mainly to sales of equity-linked instruments. With its enhanced business platform and effective e-service trading channels, the bank continued to capture more business opportunities and grew its number of securities accounts by 14.1 per cent year on year. Stockbroking and related service income increased by 9.5 per cent to HK$808 million. Private banking business entered a period of consolidation, with the turbulent stock market leading to fewer customers’ transactions and a 44.5 per cent decline in wealth management income in the first half of the year. Moving forward, the bank will work to expand its business by strengthening its relationship management team, enhancing investment services support and implementing a variety of wealth management initiatives that will ensure it can better exploit medium and long-term business opportunities. Private banking’s customer base grew slightly by 15.4 per cent. Assets under management declined by 10.5 per cent due mainly to the volatile financial market conditions. Life insurance fell by HK$81 million, or 8.6 per cent, to HK$862 million (analysed in the table below). Despite poor investment sentiment in the market, the bank was able to sustain robust growth in bancassurance. Its life insurance business ranked number one in Hong Kong in terms of new annualised premiums in the first quarter of 2008 and net earned insurance premium income grew by 44.9 per cent in the first half. A number of marketing campaigns were launched to support sales of insurance products and boost the savings insurance and health protection products which contributed to insurance’s phenomenal success in the first half of 2008. Investment returns were adversely affected by the slowdown in the financial markets, recording a loss of HK$1,030 million compared with a profit of HK$689 million for the same period last year. The increase in movement in policyholders’ liabilities was largely in line with the increase in premium income.

- 30 -


(continued)__________________________________________________________________________________________

Analysis of income from wealth management business (continued) General insurance income fell by 5.8 per cent to HK$147 million.


Life insurance: - net interest income and fee income 601 429 514- investment returns on life insurance funds (1,030) 689 1,214- net earned insurance premiums 6,774 4,676 4,718- claims, benefits and surrenders paid (825) (618 ) (667)- movement in policyholders’ liabilities (5,030) (4,445 ) (4,870)- reinsurers’ share of claims incurred and movement in policyholders’ liabilities 9 5 13- movement in present value of in-force long-term insurance business 363 207 190 862 943 1,112General insurance and others 147 156 192Total 1,009 1,099 1,304 Including premium and investment reserves

- 31 -


(continued)__________________________________________________________________________________________

Loan impairment charges and other credit risk provisions Half-year ended Half-year ended Half-year ended 30 June 30 June 31 DecemberFigures in HK$m 2008 2007 2007 Loan impairment charges: - individually assessed (56) (137 ) (113)- collectively assessed (132) (143 ) (183) (188) (280 ) (296)Of which: - new and additional (278) (349 ) (353)- releases 60 40 24- recoveries 30 29 33 (188) (280 ) (296) Loan impairment charges and other credit risk provisions (188) (280 ) (296) Loan impairment charges and other credit risk provisions were lower – falling by HK$92 million, or 32.9 per cent, to HK$188 million. There was a reduction in individually assessed provisions due to lower provisions made for commercial banking loans and a net release in respect of the mortgage portfolio. Under collectively assessed charges, a HK$150 million charge was made on the card and personal loan portfolio, representing a rise of 48.5 per cent over the first half of 2007, related partly to the 5.3 per cent growth of this portfolio. The delinquency rate and level of loan losses continued to be satisfactory. A release of HK$18 million was made on advances not identified individually as impaired, compared with a charge of HK$42 million made in the first half of 2007. This reflects the update of historical loss rates and loan balances for the first half of 2008.

- 32 -


(continued)__________________________________________________________________________________________

Operating expenses Half-year ended Half-year ended Half-year ended 30 June 30 June 31 December Figures in HK$m 2008 2007 2007 Employee compensation and benefits: - salaries and other costs 1,351 1,171 1,272 - performance-related pay 301 405 690 - retirement benefit costs 84 22 25 1,736 1,598 1,987 General and administrative expenses: - rental expenses 203 170 209 - other premises and equipment 422 363 457 - marketing and advertising expenses 242 225 376 - other operating expenses 489 378 506 1,356 1,136 1,548 Depreciation of business premises and equipment 201 169 179 Amortisation of intangible assets 27 11 22

3,320 2,914 3,736 Cost efficiency ratio 26.3 % 26.6 % 26.6 % At 30 June At 30 June At 31 December Staff numbers by region 2008 2007 2007 Hong Kong 8,240 7,724 8,033 Mainland 1,312 843 1,097 Others 58 58 60 Total 9,610 8,625 9,190 Full-time equivalent

Operating expenses rose by HK$406 million, or 13.9 per cent, compared with the first half of 2007. Employee compensation and benefits increased by HK$138 million, or 8.6 per cent. Of this amount, salaries and other costs increased by 15.4 per cent, reflecting the increase in headcount and annual salary increment. Performance-related pay expenses were lower while retirement benefit costs increased due to the change in actuarial assumption made on the expected rate of salary increase at the end of last year. General and administrative expenses increased by 19.4 per cent due to rising rental expenses, IT costs and marketing expenses. Rental expenses rose due to increased rents for branches in Hong Kong as well as new branches on the Mainland and the bank’s large office premises in Kowloon Bay. Depreciation charges rose by 18.9 per cent, due mainly to the acquisition of equipment, fixtures and fittings for the Kowloon Bay office and the bank’s Head Office in Central. Business expansion by Hang Seng China – which grew its network from 23 to 30 outlets and its full-time equivalent staff from 1,097 to 1,312 during the first half of 2008 – also contributed to the increase in operating expenses.

- 33 -


(continued)__________________________________________________________________________________________

Operating expenses (continued) The group’s number of full-time equivalent staff rose by 420 compared with 2007 year-end. In Hong Kong, the expansion of CMB‘s relationship management and wealth management teams as well as IT systems development needs saw headcount grow by 207, accounting for 49.3 per cent of the total rise in staff number since the beginning of the year. New hires to support Hang Seng China’s mainland expansion accounted for the remaining increase. The cost efficiency ratio for the first half of 2008 was 26.3 per cent, compared with 26.6 per cent for the first and second halves of 2007. Gains less losses from financial investments and fixed assets Half-year ended Half-year ended Half-year ended 30 June 30 June 31 December Figures in HK$m 2008 2007 2007 Net gains from disposal of available-for-sale equity securities 369 248 201 Impairment of available-for-sale (118 ) __ __ equity securities Gains less losses on disposal of investment properties __ 20 188 Gains less losses on disposal of fixed assets (5 ) 6 53 246 274 442

Gains less losses from financial investments and fixed assets amounted to HK$246 million, a decrease of HK$28 million compared with the first half of 2007. Net gains from the disposal of available-for-sale equity securities increased by HK$121 million, or 48.8 per cent, comprised mainly of profit realised from the partial disposal of shares held in MasterCard Inc and the redemption of shares in Visa Inc following its IPO early this year. In accordance with the accounting standard, the significant and in some cases, prolonged decline in global equity markets led to an impairment charge of HK$118 million being made for certain available-for-sale equity securities acquired in recent years. Gain on dilution of investment in associate In the first half of 2007, the group recorded a dilution gain of HK$1,465 million resulting from its investment in Industrial Bank Co., Ltd. No such gain was made in the first half of 2008.

- 34 -


(continued)__________________________________________________________________________________________

Tax expense Taxation in the consolidated income statement represents: Half-year ended Half-year ended Half-year ended 30 June 30 June 31 DecemberFigures in HK$m 2008 2007 2007 Current tax – provision for Hong Kong profits tax Tax for the period 1,447 1,218 1,694Adjustment in respect of prior periods (13 ) (141 ) __

Current tax – taxation outside Hong Kong Tax for the period 5 28 1 Deferred tax Origination and reversal of temporary differences 75 45 20Effect of decrease in tax rate on deferred tax balances at 1 January (48 ) __ __

Total tax expenses 1,466 1,150 1,715 The current tax provision is based on the estimated assessable profit for the first half of 2008, and is determined for the bank and its subsidiaries operating in Hong Kong by using the Hong Kong profits tax rate of 16.5 per cent (17.5 per cent in 2007). For subsidiaries and branches operating in other jurisdictions, the appropriate tax rates prevailing in the relevant countries are used. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.

- 35 -


(continued)__________________________________________________________________________________________

Earnings per share The calculation of earnings per share for the first half of 2008 is based on earnings of HK$9,064 million (HK$8,867 million and HK$9,375 million for the first and second halves of 2007 respectively) and on the weighted average number of ordinary shares in issue of 1,911,842,736 shares (unchanged from the first and second halves of 2007). Dividends per share Half-year ended Half-year ended Half-year ended 30 June 30 June 31 December 2008 2007 2007 HK$ HK$m HK$ HK$m HK$ HK$m per share per share per share First interim 1.10 2,103 1.10 2,103 __ __

Second interim 1.10 2,103 1.10 2,103 __ __

Third interim __ __ __ __ 1.10 2,103Fourth interim __ __ __ __ 3.00 5,736 2.20 4,206 2.20 4,206 4.10 7,839 Segmental analysis Segmental information is presented in respect of business and geographical segments. Business by customer group information, which is more relevant to the group in making operating and financial decisions, is chosen as the primary reporting format. For the purpose of segmental analysis, the allocation of revenue reflects the benefits of capital and other funding resources allocated to the customer groups or geographical segments by way of internal capital allocation and fund transfer-pricing mechanisms. Cost allocation is based on the direct costs incurred by the respective customer groups and apportionment of management overheads. Rental charges at market rates for usage of premises are reflected as inter-segment income for the ‘Other’ customer group and inter-segment expenses for the respective customer groups. (a) By customer group The group’s business comprises five customer groups. Personal Financial Services provides banking (including deposits, credit cards, mortgages and other retail lending) and wealth management services (including private banking, investment and insurance) to personal customers. Commercial Banking manages middle market and smaller corporate relationships and specialises in trade-related financial services. Corporate Banking handles relationships with large corporate and institutional customers. Treasury engages in balance sheet management and proprietary trading. Treasury also manages the funding and liquidity positions of the group and other market risk positions arising from banking activities. ‘Other’ mainly represents management of shareholders’ funds and investments in premises, investment properties and equity shares.

- 36 -


(continued)__________________________________________________________________________________________

Segmental analysis (continued) (a) By customer group (continued) Profit before tax contributed by the customer groups for the periods stated is set out in the table below. More customer group analysis and discussions are set out in the ‘Customer group performance’ section on page 11. Personal Financial Commercial Corporate Figures in HK$m Services Banking Banking Treasury Other Total Half-year ended 30 June 2008 Profit before tax 5,284 1,703 365 1,983 1,195 10,530 Share of profit before tax 50.2 % 16.2 % 3.5 % 18.8 % 11.3 % 100.0 % Half-year ended 30 June 2007 Profit before tax 5,278 1,285 192 571 2,892 10,218 Share of profit before tax 51.7 % 12.6 % 1.8 % 5.6 % 28.3 % 100.0 % Half-year ended 31 December 2007 Profit before tax 6,640 1,416 283 1,258 1,656 11,253 Share of profit before tax 59.0 % 12.6 % 2.5 % 11.2 % 14.7 % 100.0 %

- 37 -


(continued)__________________________________________________________________________________________

Segmental analysis (continued) (b) By geographical region The geographical regions in this analysis are classified by the location of the principal operations of the subsidiary companies or, in the case of the bank itself, by the location of the branches responsible for reporting the results or advancing the funds. Mainland Figures in HK$m Hong Kong Americas and other Total Half-year ended 30 June 2008 Income and expense Total operating income 16,789 1,296 438 18,523Profit before tax 8,410 1,273 847 10,530Capital expenditure incurred 313 __ 54 367 At 30 June 2008 Total assets 620,326 74,177 53,413 747,916 Total liabilities 658,663 3,453 30,192 692,308 Contingent liabilities and commitments 207,082 __ 12,417 219,499 Half-year ended 30 June 2007 Income and expense Total operating income 15,001 794 277 16,072Profit before tax 7,547 776 1,895 10,218Capital expenditure incurred 181 __ 37 218 At 30 June 2007 Total assets 639,154 67,972 34,196 741,322 Total liabilities 668,243 3,886 16,245 688,374 Contingent liabilities and commitments 176,613 __ 13,218 189,831 Half-year ended 31 December 2007 Income and expense Total operating income 18,258 988 374 19,620 Profit before tax 9,603 972 678 11,253 Capital expenditure incurred 251 __ 72 323 At 31 December 2007 Total assets 630,989 71,082 43,928 745,999 Total liabilities 663,333 4,020 22,190 689,543 Contingent liabilities and commitments 200,462 __ 15,007 215,469

- 38 -


(continued)__________________________________________________________________________________________

Cash and balances with banks and other financial institutions At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Cash in hand 3,099 4,626 3,308 Balances with central banks 2,049 562 6,004 Balances with banks and other financial institutions 14,607 7,733 7,552 19,755 12,921 16,864 Placings with and advances to banks and other financial institutions At 30 June At 30 June At 31 DecemberFigures in HK$m 2008 2007 2007 Placings with and advances to banks and other financial institutions maturing within one month 99,200 73,931 93,370Placings with and advances to banks and other financial institutions maturing after one month 37,334 20,554 19,659 136,534 94,485 113,029 Trading assets At 30 June At 30 June At 31 DecemberFigures in HK$m 2008 2007 2007 Treasury bills 6,732 4,566 6,303Certificates of deposit __ 61 __

Other debt securities 5,413 4,870 4,058Debt securities 12,145 9,497 10,361Equity shares 6 14 2Total trading securities 12,151 9,511 10,363Other 1,538 337 27Total trading assets 13,689 9,848 10,390

This represents amount receivable from counterparties on trading transactions not yet settled.

- 39 -


(continued)__________________________________________________________________________________________

Financial assets designated at fair value At 30 June At 30 June At 31 DecemberFigures in HK$m 2008 2007 2007 Certificates of deposit 190 198 52Other debt securities 9,813 4,521 7,860Debt securities 10,003 4,719 7,912Equity shares 2,604 5,108 5,980 12,607 9,827 13,892 Advances to customers At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Gross advances to customers 338,202 311,952 309,409 Less: Loan impairment allowances: - individually assessed (415) (408 ) (417)- collectively assessed (630) (572 ) (636) 337,157 310,972 308,356 Included in advances to customers are: - trade bills 3,676 3,491 3,690 - loan impairment allowances (12) (17 ) (14) 3,664 3,474 3,676

- 40 -


(continued)__________________________________________________________________________________________

Loan impairment allowances against advances to customers Individually Collectively Figures in HK$m assessed assessed Total At 1 January 2008 417 636 1,053Amounts written off (64) (157 ) (221) Recoveries of advances written off in previous years 11 19 30 New impairment allowances charged to income statement 109 169 278 Impairment allowances released to income statement (53) (37 ) (90) Unwinding of discount of loan impairment allowances recognised as ‘interest income’ (5) __ (5) At 30 June 2008 415 630 1,045 Total loan impairment allowances as a percentage of gross advances to customers are as follows: At 30 June At 30 June At 31 December 2008 2007 2007 % % % Loan impairment allowances: - individually assessed 0.12 0.13 0.13 - collectively assessed 0.19 0.18 0.21 Total loan impairment allowances 0.31 0.31 0.34 Total loan impairment allowances as a percentage of gross advances to customers was 0.31 per cent at 30 June 2008, 0.03 percentage points lower than at the end of 2007. Individually assessed allowances as a percentage of gross advances fell by 0.01 percentage points to 0.12 per cent, reflecting recoveries from doubtful accounts and the writing off of irrecoverable balances against impairment allowances. The percentage of collectively assessed allowances decreased by 0.02 percentage points to 0.19 per cent, due mainly to the release in impairment allowances made on advances not identified as impaired as a result of the update of the historical loss rates and loan balances used for the first half of 2008.

- 41 -


(continued)__________________________________________________________________________________________

Impaired advances and allowances At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Gross impaired advances 1,391 1,432 1,261 Individually assessed allowances (415 ) (408 ) (417 ) 976 1,024 844 Individually assessed allowances as a percentage of gross impaired advances 29.8 % 28.5 % 33.1 % Gross impaired advances as a percentage of gross advances to customers 0.4 % 0.5 % 0.4 % Impaired advances are those advances where objective evidence exists that full repayment of principal or interest is considered unlikely. Gross impaired advances rose by HK$130 million, or 10.3 per cent, to HK$1,391 million, mainly due to the downgrade of certain commercial banking accounts which is partly offset by the write-off of irrecoverable balances against impairment allowances and customer repayments. Same as the end of 2007, gross impaired advances as a percentage of gross advances to customers stayed at 0.4 per cent. At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Gross individually assessed impaired advances 1,300 1,366 1,183 Individually assessed allowances (415 ) (408 ) (417 ) 885 958 766 Gross individually assessed impaired advances as a percentage of gross advances to customers 0.4 % 0.4 % 0.4 % Amount of collateral which has been taken into account in respect of individually assessed impaired advances to customers 848 922 754

- 42 -


(continued)__________________________________________________________________________________________

Impaired advances and allowances (continued) Collateral includes any tangible security that carries a fair market value and is readily marketable. This includes (but is not limited to) cash and deposits, stocks and bonds, mortgages over properties and charges over other fixed assets such as plant and equipment. Where collateral values are greater than gross advances, only the amount of collateral up to the gross advance was included. Overdue advances Advances to customers that are more than three months overdue and their expression as a percentage of gross advances to customers are as follows: At 30 June At 30 June At 31 December 2008 2007 2007 HK$m % HK$m % HK$m % Gross advances to customers which have been overdue with respect to either principal or interest for periods of: - more than three months but not more than six months 217 0.1 472 0.1 329 0.1 - more than six months but not more than one year 164 __ 178 0.1 312 0.1 - more than one year 336 0.1 173 0.1 112 __ 717 0.2 823 0.3 753 0.2 Advances with a specific repayment date are classified as overdue when the principal or interest is overdue and remains unpaid at period-end. Advances repayable by regular instalments are treated as overdue when an instalment payment is overdue and remains unpaid at period-end. Advances repayable on demand are classified as overdue either when a demand for repayment has been served on the borrower but repayment has not been made in accordance with the demand notice, or when the advances have remained continuously outside the approved limit advised to the borrower for more than the overdue period in question. Overdue advances fell by 4.8 per cent to HK$717 million at 30 June 2008. Overdue advances as a percentage of gross advances to customers stood at 0.2 per cent, the same as at the end of 2007.

- 43 -


(continued)__________________________________________________________________________________________

Rescheduled advances Rescheduled advances and their expression as a percentage of gross advances to customers are as follows: At 30 June At 30 June At 31 December 2008 2007 2007 HK$m % HK$m % HK$m % Rescheduled advances to customers 272 0.1 343 0.1 352 0.1 Rescheduled advances are those advances that have been rescheduled or renegotiated for reasons related to the borrower’s financial difficulties. This will normally involve the granting of concessionary terms and resetting the overdue account to non-overdue status. A rescheduled advance will continue to be disclosed as such unless the debt has been performing in accordance with the rescheduled terms for a period of six to 12 months. Rescheduled advances that have been overdue for more than three months under the rescheduled terms are reported as overdue advances (page 42). Rescheduled advances decreased by HK$80 million, or 22.7 per cent, to HK$272 million at 30 June 2008, representing 0.1 per cent of gross advances to customers (unchanged from the previous year-end).

Segmental analysis of advances to customers by geographical area Advances to customers by geographical area are classified according to the location of the counterparties after taking into account the transfer of risk. In general, risk transfer applies when an advance is guaranteed by a party located in an area that is different from that of the counterparty. At 30 June 2008, about 90 per cent (over 90 per cent at 30 June 2007 and 31 December 2007) of the group’s advances to customers, including related impaired advances and overdue advances, were classified under Hong Kong. There was no geographical segment other than Hong Kong to which the bank's advances to customers is not less than 10 per cent of the total loans and advances.

- 44 -


(continued)__________________________________________________________________________________________

Gross advances to customers by industry sector The analysis of gross advances to customers by industry sector based on categories and definitions used by the HKMA is as follows: At 30 June At 30 June At 31 December 2008 2007 2007 Figures in HK$m Gross advances to customers for use in Hong Kong Industrial, commercial and financial sectors Property development 20,658 17,855 20,431 Property investment 62,251 51,461 54,676 Financial concerns 2,468 1,917 3,232 Stockbrokers 313 7,976 524 Wholesale and retail trade 6,875 6,084 6,034 Manufacturing 13,767 8,098 8,311 Transport and transport equipment 8,837 9,431 9,368 Recreational activities 235 211 218 Information technology 1,051 911 913 Other 20,380 39,822 21,396 136,835 143,766 125,103 Individuals Advances for the purchase of flats under the Government Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme 17,934 19,126 18,437 Advances for the purchase of other residential properties 94,792 82,983 85,923Credit card advances 11,685 9,804 11,354Other 13,698 8,970 13,155 138,109 120,883 128,869Total gross advances for use in Hong Kong 274,944 264,649 253,972Trade finance 25,206 21,988 22,995Gross advances for use outside Hong Kong 38,052 25,315 32,442Gross advances to customers 338,202 311,952 309,409

- 45 -


(continued)__________________________________________________________________________________________

Gross advances to customers by industry sector (continued) Gross advances to customers rose by HK$28.8 billion, or 9.3 per cent, to HK$338.2 billion compared with the previous year-end. New financing for CIB customers was active, reflecting strong growth in property investment lending to keep stride with the buoyant property market. Lending to the manufacturing industry and wholesale and retail sector grew by 65.6 per cent and 13.9 per cent respectively. Advances to the financial concerns and stockbrokers sectors fell by 23.6 per cent and 40.3 per cent respectively. Lending to the ‘Other’ sector fell by 4.7 per cent, due mainly to the decrease in advances to non-stockbroking companies. Trade finance recorded satisfactory growth of 9.6 per cent, reflecting CMB’s achievements in broadening its range of product and service offerings for small and medium-sized enterprise (‘SME’) customers. CMB also enlarged its servicing teams and expanded delivery channels to strengthen the bank’s position as the preferred bank for SMEs in Hong Kong. Lending to individuals recorded a rise of 7.2 per cent. Excluding the fall in Government Home Ownership Scheme (‘GHOS’) mortgages, lending to individuals grew by 8.8 per cent. The bank enhanced its straight-through application capabilities available via its comprehensive e-mortgage channel and offered consultancy services to deliver personalised home-financing solutions. Supported by these efforts, residential mortgage lending to individuals rose by 10.3 per cent and the bank maintained its position as one of the market leaders in an intensely competitive sector. Mortgages under the GHOS fell at a slower pace of 2.7 per cent due to new loan drawdowns following the Housing Authority’s re-launch of GHOS flat sales in early 2007. Sustained strong consumer spending saw card advances grow by 2.9 per cent, supported by a rise of 7.9 per cent in the number of cards in issue and a 19.3 per cent increase in cardholder spending. Lending to the ‘Other’ sector – mainly personal loans and overdrafts – increased by 4.1 per cent, due in part to a series of successful promotional initiatives. Loans for use outside Hong Kong increased by HK$5,610 million, or 17.3 per cent, compared with the end of 2007. This was due largely to the 14.7 per cent expansion of mainland loan portfolios, which reached HK$29.8 billion. Strong growth was recorded in corporate lending, driven by renminbi loans. Trade finance on the Mainland rose significantly by 55.5 per cent, benefiting from the bank’s strong capabilities and experience, premium services, and broad customer base in the Pearl River Delta region. Residential mortgage business grew by 4.7 per cent.

- 46 -


__________________________________________________________________________________________ Financial investments At 30 June At 30 June At 31 DecemberFigures in HK$m 2008 2007 2007 Available-for-sale at fair value: - debt securities 156,464 230,075 220,998- equity shares 2,987 2,802 4,299Held-to-maturity debt securities at amortised cost 25,203 18,314 18,997 184,654 251,191 244,294 Fair value of held-to-maturity debt securities 24,720 17,556 19,526 Treasury bills 3,796 3,629 3,089Certificates of deposit 21,694 25,635 30,247Other debt securities 156,177 219,125 206,659Debt securities 181,667 248,389 239,995Equity shares 2,987 2,802 4,299 184,654 251,191 244,294 Available-for-sale investments include treasury bills, certificates of deposit, other debt securities and equity shares intended to be held for an indefinite period of time, but which may be sold in response to needs for liquidity or changes in the market environment. Available-for-sale investments are carried at fair value with the gains and losses from changes in fair value recognised through equity reserves. Held-to-maturity debt securities are stated at amortised cost. Where debt securities have been purchased at a premium or discount, the carrying value of the security is adjusted to reflect the effective interest rate of the debt security taking into account such premium or discount. Financial investments fell by HK$59,640 million, or 24.4 per cent, against last year-end, due mainly to the shift of funds from money market instruments to the interbank market in light of continued volatility in the credit market. At 30 June 2008, about 92 per cent of the Group’s financial investments were assigned with grade A or above by rating agencies. The Group did not hold any sub-prime related assets such as collateralised debt obligations, mortgages and asset-backed securities, and structured investment vehicles at 30 June 2008. Investments in associates At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Share of net assets 6,848 5,007 5,894 Goodwill 301 272 283 7,149 5,279 6,177 Investments in associates increased by HK$972 million, mainly due to the increase in the bank’s share of net assets of Industrial Bank Co., Ltd.

- 47 -


(continued)__________________________________________________________________________________________

Other assets At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Items in the course of collection from other banks 6,856 21,350 6,193 Prepayments and accrued income 3,072 3,990 4,433 Deferred tax assets 5 1 1 Assets held for sale - Repossessed assets 99 111 116 - Other assets held for sale 62 915 83 Acceptances and endorsements 3,834 3,237 3,294 Retirement benefit assets 88 1,366 109 Other accounts 2,194 1,763 1,237 16,210 32,733 15,466 Current, savings and other deposit accounts At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Current, savings and other deposit accounts: - as stated in consolidated balance sheet 535,148 512,450 546,653 - structured deposits reported as trading liabilities 31,067 27,571 24,162 566,215 540,021 570,815 By type: - demand and current accounts 37,674 36,555 34,130 - savings accounts 259,058 227,101 254,976 - time and other deposits 269,483 276,365 281,709 566,215 540,021 570,815

- 48 -


(continued)__________________________________________________________________________________________

Certificates of deposit and other debt securities in issue At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Certificates of deposit and other debt securities in issue: - as stated in consolidated balance sheet 4,026 7,282 5,685 - structured certificates of deposit and other debt securities in issue reported as trading liabilities 9,867 11,116 14,087 13,893 18,398 19,772 By type: - certificates of deposit in issue 4,660 13,504 9,212 - other debt securities in issue 9,233 4,894 10,560 13,893 18,398 19,772 Customer deposits and certificates of deposit and other debt securities in issue fell by 1.8 per cent to HK$580.1 billion, with notable reductions in time deposits, structured certificates of deposit and other debt securities in issue. Structured deposits, however, recorded an increase of 28.6 per cent, reflecting the bank’s efforts to broaden the range of investment options and yield enhancement products available to meet the diverse needs of its customers. In tandem with the expanding scope of renminbi banking services offered by Hang Seng China, deposits from mainland branches registered very strong growth of 94.1 per cent. Hang Seng China will continue to expand its number of outlets and provide premium customer service and comprehensive renminbi services to grow its customer base. In order to further grow personal banking and wealth management business, a variety of investment-linked deposit products are being offered to customers on the Mainland. Trading liabilities At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Structured certificates of deposit and other debt securities in issue 9,867 11,116 14,087 Structured deposits 31,067 27,571 24,162 Short positions in securities and other 12,833 5,607 9,902 53,767 44,294 48,151

- 49 -


(continued)__________________________________________________________________________________________

Other liabilities At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Items in the course of transmission to other banks 7,951 13,332 8,407 Accruals 2,775 2,805 3,836 Acceptances and endorsements 3,834 3,237 3,294 Retirement benefit liabilities 1,098 __ 633 Other 1,971 2,749 1,680 17,629 22,123 17,850 Subordinated liabilities At 30 June At 30 June At 31 DecemberFigures in HK$m 2008 2007 2007 Nominal value Description Amount owed to third parties HK$1,500 million Callable floating rate subordinated notes due June 2015 1,497 1,496 1,497 HK$1,000 million 4.125 per cent callable fixed rate subordinated notes due June 2015 979 969 989 US$450 million Callable floating rate subordinated notes due July 2016 3,498 3,503 3,497 US$300 million Callable floating rate subordinated notes due July 2017 2,332 2,342 2,332 Amount owed to HSBC Group undertakings US$260 million Callable floating rate subordinated loan debt due December 2015 2,028 2,032 2,028 10,334 10,342 10,343Representing: - measured at amortised cost 9,355 9,373 9,354- designated at fair value 979 969 989 10,334 10,342 10,343

- 50 -


__________________________________________________________________________________________ Subordinated liabilities (continued) There was no subordinated debt issued during the first half of 2008. The outstanding subordinated notes, which qualify as supplementary capital, serve to help the bank maintain a more balanced capital structure and support business growth. Shareholders’ funds At 30 June At 30 June At 31 DecemberFigures in HK$m 2008 2007 2007 Share capital 9,559 9,559 9,559Retained profits 37,358 32,706 32,873Premises revaluation reserve 4,094 3,621 3,639Cash flow hedges reserve (11) (206 ) 144Available-for-sale investments reserve - on debt securities (2,214 ) (575 ) (841)- on equity securities 1,352 1,595 2,733Capital redemption reserve 99 99 99Other reserves 3,268 2,129 2,514Total reserves 43,946 39,369 41,161 53,505 48,928 50,720Proposed dividends 2,103 2,103 5,736Shareholders’ funds 55,608 51,031 56,456 Return on average shareholders’ funds 32.8 % 36.6 % 34.3 % Shareholders’ funds (excluding proposed dividends) grew by HK$2,785 million, or 5.5 per cent, to HK$53,505 million at 30 June 2008. Retained profits rose by HK$4,485 million, mainly reflecting the growth in attributable profit (excluding first and second interim dividends) during the period. The premises revaluation reserve increased by HK$455 million on the back of the strong property market. The available-for-sale investments reserve on debt securities showed a deficit of HK$2,214 million compared with a deficit of HK$841 million at last year-end, reflecting the significant widening of credit spreads due to continued credit market disruption. During the period, the Group has assessed that there are no objective indications that the debt securities have suffered any impairment, and thus, no impairment loss has been recognized. The available-for-sale investments reserve on equity securities was reduced by HK$1,381 million to HK$1,352 million since last year-end, mainly attributable to the decrease in the fair value of certain equity securities which were not impaired but adversely affected by the slowdown of the equities market. In accordance with the accounting standard, we have written down the value of certain impaired equity securities acquired in recent years amounted to HK$118 million and recognised through the income statement as a result of the significant and in some case, prolonged decline in global equity markets. The return on average shareholders’ funds was 32.8 per cent, compared with 36.6 per cent for the first half of 2007 and 34.3 per cent for the second half of 2007. There was no purchase, sale or redemption by the bank, or any of its subsidiaries, of the bank’s securities during the first half of 2008.

- 51 -


(continued)__________________________________________________________________________________________

Capital resources management Analysis of capital base and risk-weighted assets At 30 June At 30 June At 31 December Figures in HK$m 2008 2007 2007 Capital base Core capital: - Share capital 9,559 9,559 9,559 - Retained profits 33,262 27,546 29,437 - Classified as regulatory reserve (1,061 ) (572 ) (911 )- Less: goodwill (301 ) (272 ) (283 )- Less: 50 per cent of total unconsolidated investments and other deductions (6,430 ) (2,416 ) (5,875 )- Total core capital 35,029 33,845 31,927 Supplementary capital: - Fair value gains on the revaluation of property 3,750 3,328 3,466 - Fair value gains on the revaluation of available-for-sale investment and equity 507 599 823 - Collective impairment allowances 68 572 636 - Regulatory reserve 127 572 911 - Term subordinated debt 10,354 10,343 10,354 - Less: 50 per cent of total unconsolidated investments and other deductions (6,430) (2,416 ) (5,875 )- Total supplementary capital 8,376 12,998 10,315 Total capital base after deductions 43,405 46,843 42,242 Risk-weighted assets - Credit risk 272,701 348,698 342,798 - Market risk 2,333 1,313 2,166 - Operational risk 36,314 30,377 33,558 311,348 380,388 378,522 Capital adequacy ratio 13.9 % 12.3 % 11.2% Core capital ratio 11.3 % 8.9 % 8.4%

- 52 -


(continued)__________________________________________________________________________________________

Capital resources management (continued) Capital ratios at 30 June 2008 were compiled in accordance with the Banking (Capital) Rules (‘the Capital Rules’) issued by the HKMA under section 98A of the Hong Kong Banking Ordinance for the implementation of Basel II, which came into effect on 1 January 2007. Having obtained approval from the HKMA to adopt the ‘foundation internal ratings-based approach’ (‘FIRB’) to calculate the risk-weighted assets for credit risk from 1 January 2008, the bank used the FIRB approach to calculate its credit risk exposure at 30 June 2008. The standardised (operational risk) approach and internal models approach were used to calculate its operational risk and market risk respectively. The capital adequacy ratio and core capital ratio at 31 December 2007 were calculated using the standardised (credit risk) approach (‘STC’). As there are significant differences between the FIRB and STC approaches, the capital ratios of the two periods are not directly comparable. The basis of consolidation for calculation of capital ratios under the Capital Rules follows the basis of consolidation for financial reporting with the exclusion of subsidiaries which are ‘regulated financial entities’ (e.g. insurance and securities companies) as defined by the Capital Rules. Accordingly, the investment costs of these unconsolidated regulated financial entities are deducted from the capital base. In accordance with the HKMA guideline Impact of the New Hong Kong Accounting Standards on Authorised Institutions’ Capital Base and Regulatory Reporting, the group has earmarked a ‘regulatory reserve’ of HK$1,061 million from retained profits. Liquidity ratio The average liquidity ratio for the periods indicated, calculated in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance, is as follows: Half-year ended Half-year ended Half-year ended 30 June 30 June 31 December 2008 2007 2007 The bank and its subsidiaries designated by the HKMA 47.3 % 52.9 % 53.0 %

- 53 -


(continued)__________________________________________________________________________________________

Reconciliation of cash flow statement (a) Reconciliation of operating profit to net cash flow from operating activities Half year ended Half year ended 30 June 30 JuneFigures in HK$m 2008 2007 Operating profit 9,112 7,773Net interest income (8,252 ) (6,696) Dividend income (54 ) (26) Loan impairment charges and other credit risk provisions 188 280Impairment of available-for-sale equity securities 118 __

Depreciation 201 169Amortisation of intangible assets 27 11Amortisation of available-for-sale investments (333 ) (392) Amortisation of held-to-maturity debt securities __ (2) Advances written off net of recoveries (192 ) (215) Interest received 7,021 12,029Interest paid (4,818 ) (9,372) Operating profit before changes in working capital 3,018 3,559Change in treasury bills and certificates of deposit with original maturity more than three months 9,223 (3,108) Change in placings with and advances to banks maturing after one month (17,675 ) 3,429 Change in trading assets (2,881 ) 1,677Change in financial assets designated at fair value (125 ) (472) Change in derivative financial instruments 3,069 806 Change in advances to customers (28,797 ) (31,685) Change in other assets (3,354 ) 4,164 Change in financial liabilities designated at fair value (10 ) 486 Change in current, savings and other deposit accounts (11,505 ) 29,125 Change in deposits from banks (1,101 ) 40,154Change in trading liabilities 5,616 (15,799) Change in certificates of deposit and other debt securities in issue (1,659 ) (313) Change in other liabilities 4,724 (15,665) Elimination of exchange differences and other non-cash items (3,435 ) (3,560) Cash (used in)/generated from operating activities (44,892 ) 12,798Taxation paid (26 ) (422) Net cash (outflow)/inflow from operating activities (44,918 ) 12,376

- 54 -


(continued)__________________________________________________________________________________________

Reconciliation of cash flow statement (continued) (b) Analysis of the balances of cash and cash equivalents At 30 June At 30 JuneFigures in HK$m 2008 2007 Cash and balances with banks and other financial institutions 19,755 12,921Placings with and advances to banks and other financial institutions maturing within one month 96,126 71,487Treasury bills 5,371 6,258Certificates of deposit 2,882 445 124,134 91,111 Contingent liabilities, commitments and derivatives Credit Risk- Contract equivalent weighted Figures in HK$m amount amount amount At 30 June 2008 Direct credit substitutes 3,554 3,554 1,775 Transaction-related contingencies 1,233 616 555 Trade-related contingencies 11,203 2,241 1,460 Forward asset purchases 196 196 196 Undrawn formal standby facilities, credit lines and other commitments to lend: - not unconditionally cancellable 33,121 23,389 8,318 - unconditionally cancellable 147,070 28,786 5,527 196,377 58,782 17,831 Exchange rate contracts: Spot and forward foreign exchange 487,800 7,351 1,852 Other exchange rate contracts 80,674 1,777 870 568,474 9,128 2,722 Interest rate contracts: Interest rate swaps 226,277 2,078 406 Other interest rate contracts 262 1 __

226,539 2,079 406 Other derivative contracts 29,714 2,948 1,678 The contract amount for undrawn formal standby facilities, credit lines and other commitments to lend with original maturity of ‘not more than one year’ and ‘more than one year’ were HK$16,028 million and HK$17,093 million respectively.

- 55 -


(continued)__________________________________________________________________________________________

Contingent liabilities, commitments and derivatives (continued) Credit Risk- Contract equivalent weighted amount amount amount Figures in HK$m (restated) At 30 June 2007 Direct credit substitutes 4,167 4,167 3,437 Transaction-related contingencies 677 339 335 Trade-related contingencies 10,911 2,182 2,172 Forward asset purchases 45 45 45 Undrawn formal standby facilities, credit lines and other commitments to lend: - not more than one year 29,323 5,865 5,865 - more than one year 17,384 8,692 7,409 - unconditionally cancellable 110,015 __ __ 172,522 21,290 19,263 Exchange rate contracts: Spot and forward foreign exchange 390,707 4,601 1,180 Other exchange rate contracts 20,295 504 123 411,002 5,105 1,303 Interest rate contracts: Interest rate swaps 176,490 1,524 347 Other interest rate contracts 323 1 __ 176,813 1,525 347 Other derivative contracts 8,860 637 293

- 56 -


(continued)__________________________________________________________________________________________

Contingent liabilities, commitments and derivatives (continued) Credit Risk- Contract equivalent weighted Figures in HK$m amount amount amount At 31 December 2007 Direct credit substitutes 4,651 4,651 3,638 Transaction-related contingencies 812 406 398 Trade-related contingencies 10,274 2,055 2,045 Forward asset purchases 115 115 115 Undrawn formal standby facilities, credit lines and other commitments to lend: - not more than one year 20,253 4,051 4,051 - more than one year 15,973 7,986 6,752 - unconditionally cancellable 145,641 __ __ 197,719 19,264 16,999 Exchange rate contracts: Spot and forward foreign exchange 580,889 7,606 2,196 Other exchange rate contracts 25,957 803 189 606,846 8,409 2,385 Interest rate contracts: Interest rate swaps 189,703 2,121 520 Other interest rate contracts 312 __ __ 190,015 2,121 520 Other derivative contracts 26,709 2,294 1,263 The tables above give the nominal contract, credit equivalent and risk-weighted amounts of off-balance-sheet transactions. The credit equivalent amounts are calculated for the purposes of deriving the risk-weighted amounts. The nominal contract amounts, credit equivalent amounts, risk-weighted amounts and the consolidation basis for the periods indicated were calculated in accordance with the Banking (Capital) Rules issued by the HKMA, which came into effect on 1 January 2007. For the above analysis, contingent liabilities and commitments are credit-related instruments that include acceptances and endorsements, letters of credit, guarantees and commitments to extend credit. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers. These transactions are, therefore, subject to the same credit origination, portfolio maintenance and collateral requirements as for customers applying for loans. As the facilities may expire without being drawn upon, the total of the contract amounts is not representative of future liquidity requirements.

- 57 -


(continued)__________________________________________________________________________________________

Contingent liabilities, commitments and derivatives (continued) Derivative financial instruments are held for trading or designated as either fair value hedges or cash flow hedges. The following table shows the nominal contract amounts and marked-to-market value of assets and liabilities by class of derivatives. At 30 June At 30 June At 31 December 2008 2007 2007 Figures in HK$m Trading Hedging Trading Hedging Trading Hedging Contract amounts: Interest rate contracts 149,919 77,233 110,819 66,737 129,861 60,232 Exchange rate contracts 732,597 __ 557,212 __ 725,862 __ Other derivative contracts 46,185 __ 13,120 __ 43,983 __ 928,701 77,233 681,151 66,737 899,706 60,232 Derivative assets: Interest rate contracts 987 562 412 650 703 935 Exchange rate contracts 3,326 __ 1,214 __ 2,512 __ Other derivative contracts 1,168 __ 72 __ 552 __ 5,481 562 1,698 650 3,767 935 Derivative liabilities: Interest rate contracts 1,041 256 580 185 777 148 Exchange rate contracts 2,667 __ 1,260 __ 2,073 __ Other derivative contracts 4,918 __ 93 __ 1,685 __ 8,626 256 1,933 185 4,535 148 The above derivative assets and liabilities, being the positive or negative marked-to-market value of the respective derivative contracts, represent gross replacement costs, as none of these contracts are subject to any bilateral netting arrangements.

- 58 -


(continued)__________________________________________________________________________________________

Additional information 1. Statutory accounts and accounting policies The information in this news release is not audited and does not constitute statutory accounts. Certain financial information in this news release is extracted from the statutory accounts for the year ended 31 December 2007 (‘2007 accounts’), which have been delivered to the Registrar of Companies and the HKMA. The auditors expressed an unqualified opinion on those statutory accounts in their report dated 3 March 2008. Disclosures required by the Banking (Disclosure) Rules issued by the HKMA are contained in the bank’s Interim Report which will be published on the websites of The Stock Exchange of Hong Kong Limited and the bank on the date of the issue of this news release. This news release has been prepared on a basis consistent with the accounting policies adopted in the 2007 accounts except for the following: HK(IFRIC)-Int 11 ‘Group and Treasury Share Transactions’ is effective for annual periods beginning on or after 1 March 2007. On application of this interpretation, with effect from 1 January 2008, the group has recognised all share-based payment transactions as equity-settled. In prior years, certain share-based payment transactions involving principally achievement and restricted share awards were recognised as cash-settled transactions, whereby a liability was recognised in respect of the fair value of such awards at each reporting date. With effect from 1 January 2008, when these are recognised as equity-settled transactions, the fair value of the awards at grant date are recognised in ‘Other reserves’ under shareholders’ equity, instead of the fair value being remeasured at each reporting date as a liability. The application of the HK(IFRIC)-Int 11 does not have significant financial and presentation effects on the group’s financial statements. As a result, no restatement of comparative figures was made as the amounts were immaterial. 2. Comparative figures Certain comparative figures have been reclassified to conform with the current period’s presentation. 3. Acquisition On 31 January 2008, the bank signed an agreement to subscribe for 20 per cent of the enlarged share capital of Yantai City Commercial Bank (‘YTCCB’) – one of the largest city commercial banks in Shandong province – for a total consideration of RMB800 million. Upon completion of the acquisition, which is subject to the relevant regulatory and YTCCB shareholder approvals, the bank will become the largest shareholder of YTCCB.

- 59 -


(continued)__________________________________________________________________________________________

Additional information (continued) 4. Property revaluation A revaluation of Hang Seng’s premises and investment properties in Hong Kong was performed in June 2008 to reflect property market movements in the first half of 2008. The group’s premises and investment properties were revalued by DTZ Debenham Tie Leung Limited, an independent professional valuer, and carried out by qualified persons who are members of the Hong Kong Institute of Surveyors. The basis of the valuation of premises was open market value for existing use and the basis of valuation for investment properties was open market value. The revaluation surplus for group premises amounted to HK$598 million of which HK$39 million was a reversal of revaluation deficits previously charged to the income statement. The balance of HK$559 million was credited to the premises revaluation reserve. Revaluation gains of HK$190 million on investment properties were recognised through the income statement. The related deferred tax provisions for group premises and investment properties were HK$99 million and HK$31 million respectively. The revaluation exercise also covered business premises/investment properties reclassified as properties held for sale. In accordance with HKFRS 5, there was no revaluation gain/loss recognised through the income statement. 5. Foreign currency positions Foreign currency exposures include those arising from trading, non-trading and structural positions. Net option position is calculated on the basis of delta-weighted positions of all foreign exchange options contracts. At 30 June 2008, the US dollar (US$) and renminbi (RMB) were the currencies in which the group had non-structural foreign currency positions that were not less than 10 per cent of the total net position in all foreign currencies. The group also had a renminbi structural foreign currency position, which was not less than 10 percent of the total net structural position in all foreign currencies. At 30 June At 30 June At 31 DecemberFigures in HK$m 2008 2007 2007 US$ RMB US$ RMB US$ RMBNon-structural position Spot assets 211,580 41,181 218,083 22,021 227,698 26,160Spot liabilities (195,205) (42,101) (212,016) (22,935 ) (184,258 ) (26,149)Forward purchases 284,711 44,852 241,832 4,049 298,806 26,549Forward sales (298,470) (45,877) (238,922) (6,144 ) (335,592 ) (28,330)Net option position (29 ) __ 60 __ 32 __

Net long/(short) non-structural position 2,587 (1,945) 9,037 (3,009 ) 6,686 (1,770 )

- 60 -


(continued)__________________________________________________________________________________________

Additional information (continued) 5. Foreign currency positions (continued) At 30 June 2008, the group’s major structural foreign currency positions were in US$ and RMB. At 30 June At 30 June At 31 December 2008 2007 2007 % of % of % of total net total net total net structural structural structural HK$m position HK$m position HK$m position Structural positions US dollar 287 2.2 287 2.9 286 2.5 Renminbi 12,265 96.0 9,469 95.9 10,752 95.8 6. Ultimate holding company Hang Seng Bank is an indirectly held, 62.14 per cent-owned, subsidiary of HSBC Holdings plc. 7. Register of shareholders The register of shareholders of Hang Seng Bank will be closed on Wednesday, 20 August 2008, during which no transfer of shares can be registered. In order to qualify for the second interim dividend, all transfers, accompanied by the relevant share certificates, must be lodged with the Bank’s registrars, Computershare Hong Kong Investor Services Limited, Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, for registration no later than 4:30 pm on Tuesday, 19 August 2008. The second interim dividend will be payable on Thursday, 4 September 2008 to shareholders on the register of shareholders of the Bank on Wednesday, 20 August 2008. Shares of the Bank will be traded ex-dividend as from Monday, 18 August 2008. 8. Proposed timetable for the remaining 2008 quarterly dividends

Third Fourth interim dividend interim dividend

Announcement 3 November 2008 2 March 2009Book close and record date 20 November 2008 18 March 2009Payment date 10 December 2008 31 March 2009

- 61 -


(continued)__________________________________________________________________________________________

Additional information (continued) 9. Code on Corporate Governance Practices The bank is committed to high standards of corporate governance and follows the module on ‘Corporate Governance of Locally Incorporated Authorised Institutions’ under the Supervisory Policy Manual issued by the Hong Kong Monetary Authority. The bank has also followed all the code provisions set out in the Code on Corporate Governance Practices contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited throughout the six months ended 30 June 2008. The Audit Committee of the bank has reviewed the results for the six months ended 30 June 2008. 10. Board of Directors As at 4 August 2008, the Board of Directors of the bank comprises Dr Raymond K F Ch’ien* (Chairman), Mr Raymond C F Or (Vice-Chairman and Chief Executive), Mr Edgar D Ancona#, Mr John C C Chan*, Mr Patrick K W Chan, Dr Y T Cheng*, Dr Marvin K T Cheung*, Mr Alexander A Flockhart#, Mr Jenkin Hui*, Mr Peter T C Lee*, Dr Eric K C Li*, Dr Vincent H S Lo#, Mr Joseph C Y Poon, Dr David W K Sin*, Mr Richard Y S Tang* and Mr Peter T S Wong#. * Independent non-executive Directors # Non-executive Directors 11. News release Copies of this news release may be obtained from Legal and Company Secretarial Services Department, Level 10, 83 Des Voeux Road Central, Hong Kong; or from Hang Seng’s website www.hangseng.com. The 2008 Interim Report and Financial Statements, which contains all disclosures required by the Banking (Disclosure) Rules issued by the HKMA, will be published on the websites of The Stock Exchange of Hong Kong Limited and Hang Seng Bank on the date of the issue of this news release. Printed copies of the 2008 Interim Report will be sent to shareholders in late August 2008. Media enquiries to: Walter Cheung Telephone: (852) 2198 4020 Michelle Chan Telephone: (852) 2198 4236

hsbc front cover of media release hang seng bank limited 2008 interim results media release

Documents